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Measuring National Output and National Income: Fernando & Yvonn Quijano
Measuring National Output and National Income: Fernando & Yvonn Quijano
19
Measuring National Output
and National Income
Prepared by:
© 2007 Prentice Hall Business Publishing Principles of Economics 8e by Case and Fair
Measuring National Output
and National Income 19
Chapter Outline
Gross Domestic Product
Final Goods and Services
Exclusion of Used Goods and Paper
Transactions
Exclusion of Output Produced
Abroad by Domestically Owned
Factors of Production
e moc nI l a noi t a N dna
Calculating GDP
The Expenditure Approach
The Income Approach
Nominal versus Real GDP
Calculating Real GDP
Calculating the GDP Deflator
The Problems of Fixed Weights
Limitations of the GDP Concept
GDP and Social Welfare
The Underground Economy
Gross National Income Per Capita
P A HC
Looking Ahead
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MEASURING NATIONAL OUTPUT
AND NATIONAL INCOME
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GROSS DOMESTIC PRODUCT
GDP is the total market value of a country’s output. It is the market value of all final goods
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and services produced within a given period of time by factors of production located within
a country.
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GROSS DOMESTIC PRODUCT
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e moc nI l a noi t a N dna
GROSS DOMESTIC PRODUCT
Tires taken from that pile and mounted on the wheels of the new car before it is
sold are considered intermediate goods to the auto producer. Tires from that
pile to replace tires on your old car are considered final goods. If, in calculating
GDP, we included the value of the tires (an intermediate good) on new cars and
the value of new cars (including the tires), we would be double counting.
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GROSS DOMESTIC PRODUCT
In calculating GDP, we can either sum up the value added at each stage of production or
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we can take the value of final sales. We do not use the value of total sales in an economy
to measure how much output has been produced.
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GROSS DOMESTIC PRODUCT
GDP ignores all transactions in which money or goods change hands but in which no new
goods and services are produced.
e moc nI l a noi t a N dna
P A HC
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GROSS DOMESTIC PRODUCT
GDP is the value of output produced by factors of production located within a country.
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CALCULATING GDP
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CALCULATING GDP
THE EXPENDITURE APPROACH
There are four main categories of expenditure:
Expenditure Categories:
■ Personal consumption expenditures (C):
household spending on consumer goods
■ Gross private domestic investment (I):
spending by firms and households on new
capital, i.e., plant, equipment, inventory, and
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investment (G)
Federal 827.6 7.1
State and local 1,388.3 11.8
Net exports (EX – IM) −624.0 − 5.3
Exports (EX) 1,173.8 10.0
Imports (IM) 1,797.8 15.3
Gross domestic product (GDP) 11,734.3 100.0
Note: Numbers may not add exactly because of rounding.
P A HC
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CALCULATING GDP
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CALCULATING GDP
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CALCULATING GDP
nonresidential investment
Expenditures by firms for machines,
tools, plants, and so on.
P A HC
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CALCULATING GDP
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CALCULATING GDP
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CALCULATING GDP
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CALCULATING GDP
be positive or negative.
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CALCULATING GDP
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CALCULATING GDP
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CALCULATING GDP
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CALCULATING GDP
DOLLARS
(BILLIONS)
GDP 11,734.3
Plus: Receipts of factor income from the rest of the world + 415.4
Less: Payments of factor income to the rest of the world − 361.7
Equals: GNP 11,788.0
Less: Depreciation − 1,435.3
Equals: Net national product (NNP) 10,352.8
Less: Statistical discrepancy − 76.9
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CALCULATING GDP
net national product (NNP) Gross
national product minus depreciation; a
nation’s total product minus what is
required to maintain the value of its
capital stock.
TABLE 6.5 National Income, Personal Income, Disposable Personal Income,
and Personal Saving, 2004
DOLLARS
(BILLIONS)
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CALCULATING GDP
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CALCULATING GDP
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NOMINAL VERSUS REAL GDP
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NOMINAL VERSUS REAL GDP
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NOMINAL VERSUS REAL GDP
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NOMINAL VERSUS REAL GDP
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NOMINAL VERSUS REAL GDP
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LIMITATIONS OF THE GDP CONCEPT
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LIMITATIONS OF THE GDP CONCEPT
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LIMITATIONS OF THE GDP CONCEPT
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LIMITATIONS OF THE GDP CONCEPT
TABLE 6.7 Per Capita Gross National Income for Selected Countries, 2004
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REVIEW TERMS AND CONCEPTS
national income and product accounts net investment = capital end of period - capital beginning of
period
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