Download Measuring the Nation`s Output

Measuring the Nation’s
Output
Chapter 13, Section 1
Gross Domestic Product
(GDP)

Most important measure of economy’s
overall performance

GDP= final goods + final services + final structures
(pg 342, Figure 13.1)

Production in U.S. plants located in
Mexico, Canada or other countries is not
counted
What is excluded?

Intermediate products – products that are used
to make other products

Secondhand sales – sales of used goods

Nonmerchant transactions – transactions that
do not take place in the market

Underground economy – illegal and
unreported activity (gambling, smuggling, drugs,
and counterfeiting)
Limitations of GDP

Tell us nothing about composition of
output

Tells us little about the impact of the
quality of life

Despite limitations it is still our best overall
measure of economic health
Measure of National Income
(pg.345, Figure 13.2)

Gross National Product (GNP): the
dollar value of all final goods, services and
structures produced in one year


Income of all Americans
Payments to Americans – Payments to
Foreign Countries = GDP -> GNP
GNP – Measure of National Income

Net National Product (NNP): GNP less
depreciation

National Income (NI): income left after all taxes
(except corporate profits tax) subtracted from
NNP

Personal Income (PI): total income going to
consumers before individual income taxes are
subtracted
National Income -> Personal Income
1.
Subtract income that does not go to the
consumer
2.
Subtract corporate income
3.
Subtract Social Security contributions
4.
Add back Social Security, Medicaid, etc.
Disposable Personal Income (DI)

Total income the consumer sector has at
its disposal after personal income taxes
Circular Flow of Economic Activity
Page 347, Figure 13.3
Output-Expenditure Model

Macroeconomic model used to show
demand by the consumer, investment,
government and foreign sectors

GDP= C + I + G + (X-M)