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# PAYMENTS FOR GOODS AND SERVICES

Other economic activities/ agents not captured in CFD
• Government spending
GOODS AND SERVICES
– Spending of the government; payment to firms
• Government payments for factors (inputs)
– Payment of government to workers, rentals to
Introduction to Macroeconomics FIRMS HOUSEHOLDS buildings, etc.
Jason P. Alinsunurin/ Lecturer, EC102
FACTOR SERVICES • Transfer payments (payments wherein one party
is not obliged to deliver a good or service in return
for a payment)
FACTOR PAYMENTS:WAGES, INTEREST, RENT, PROFIT
• Taxes
– Taxes paid on income, property, goods and services,.
The Circular Flow Diagram • Transactions with the foreign sector
A world composed of only households and firms – Exports and imports

The Economic Output The Approaches would be equivalent
• Gross Domestic Product (total value of all final How do we measure GDP? • The three approaches just represents different views
goods and services produced of an economy) of the transaction.
• Expenditure Approach- Calculating the sum of all
– Market Value: price per unit of the good multiplied • In any sale of a final good or service, one party makes
by the quantity produced expenditures on final goods
a payment (expenditure) and another party receives a
• Vi=Pi * Qi payment (income)
GDP only measures final goods (vs. intermediate –Σ (Price per unit* quantity sold)
– Expenditure approach-GDP is calculated from the side
goods) • Income approach- Measures the contribution of making the payment
• When it is divided by the total population, we different factors of production to the value of a good. – For the income approach, we simply identify how the
would be getting the average per capita income or – GDP= wages + rent + profits + rent income is divided.
GDP of each person in the economy • Value Added- Calculated by taking the difference – For value added: firms pay factor payments to
• Thus the per capita GDP can be more comparable households. The payment is the income of households.
between the sales and the sales from other firms
with other countries – STATISTICAL DISCREPANCY- captures reporting and
– Value Added= sales – purchases from other firms recording errors that cause GDP estimates to differ.
Items in the Value Added or
Industrial Origin Approach
The Expenditure Approach Items in Income approach • Aggregated into industries
– Agriculture, fishery and forestry
• Compensation of employees
• GDP= C + I + G + NX – Salaries and wages • Production of agricultural crops, ornamental plants
– C is the personal consumption expenditure, I is for and livestock. Aquaculture, municipal fishing, and
• Net operating surplus- an item that lumps together
Gross Domestic Capital Formation or Investment sources of income other than labor
harvest of marine products. Also logging and
Spending, G is for Government Spending and NX is gathering of forest products
for Net Exports. • Depreciation
– Industry
– Consumption of existing capital stock, and allowance
– NX= X-M, where X is for Exports and M is for for wear and tear. • Mining, quarrying, manufacturing, constructions and
Imports. utilities.
• Indirect taxes less subsidies
• GNP= GDP + Net factor income – Services
– Taxes on the use or purchase of goods and services,
and also grants of the government to firms. • Transportation, trade, finance, real estate, private
from the rest of the world (eg: services, government services
remittances)

Nominal and Real GDP
• Prices change Nominal and Real GDP
• How are we going to take account of the effects of • GDP at current prices: Nominal GDP Price index
• GDP at constant prices: Real GDP • Measures the cost of purchasing a given bundle of
changes in prices?
goods in one period relative to the cost of
Year 1 Year 2
purchasing a given bundle of goods in the base
Good Quantity Price Value Quantity Price Value year.
The Philippine GDP Accounts • Ex: price index is 125---prices are 25% higher in
Ice 100 50 5000 100 100 10000
cream that year compared to the base year.
Buko Pie 100 100 10000 100 200 20000 • GDP Deflator
Nominal
Real GDP= (Nominal GDP/ GDP Deflator)*100
GDP
15000 30000
Selected Values and Indicators of
the Philippines selected years GNP for cross-country comparisons
Item 1984 1985 1986 1996 1997 Per Capita GDP
GDP at current
prices (million
524,481 571,883 608,887 2,171,922 2,423,640 • =GDP/ population • GNP in US dollars= GNP in pesos/ π
pesos)
GDP Deflator (base
• Does nor necessarily translate to equal
85.01 100.00 102.95 255.78 271.40
year=1985)
distribution of wealth
GDP at constant
prices
616,964 571,883 591,440 849,137 893,014 • Per capita GNP in US dollars= per
Per capita GDP at 9,890 10,524 10,935 30,208 32,961 capita GNP in pesos/ π
current prices
pesos)
Per capita GDP at 11,634 10,524 10,622 11,810 12,145
contant prices
Population ( in
• Where π is the prevailing exchange rates
53.03 54.34 55.68 71.90 73.53
millions)
• In order to compare with different countries

Economic Indicators for Selected
Countries
Country Population in GNP in Per capita PPP adjusted
millions billions GNP per capita
GNP