anny GDP and lis Components In 2000 the GDP of the United Stites tabled whet RM nathan Cn Winn so large that it is almost impossible t+ cnnprelienil We ean iiahe ite derstand by dividing it hy die 2000-08 pepuliionat 75 avillign ita HAY, obtain GDP per person——the amount ab expenditie lar tie avenue Arner ai which equaled $36,174 in 2000 Wet Heyy, table 2-4 GDP and the Components of Expenditure: 2006 Votat War Barwon (billions of dollars) (dollars) Gross Domestic Product 9,964.1 40N74 Consumption 6,757.3 DA, Nondurable goods 2,010.0 720%, Durable goods. 420.4 2076 Services 4,927.0 14,254 Investment. 1832.7 6,654 Nonresidential fixed investment 1,362.2 ADAG Residential fixed investment A160 1,510 Inventory investment 54.5 194, Government Purchases. 1,743.7 6,391 Federal 595.2 2161 Defense 377.0 1,369 Nondefense 218.2 192 State and local 1,148.6 4,170 Net Exports ~370.7 1,346 Exports 1,097.3, Imports 1,408.0 Source: U.S. Dep ment of Commerce,CHAPTER 2 The Data of Macroeconomics | 27 did this GDP get used? Table 2-1 shows that about two-thirds of it, or | per person, was spent on consumption, Investment was $6,654 per per- vernment purchases were $6,331 per person, $1,369 of which was spent ‘éderal government on national defense. average American bought $5,330 of goods imported from abroad and ed $3,984 of goods that were exported to other countries. Because the American imported more than he exported, net exports were negative. rmore, because the average American earned less from. selling to foreigners shan he spent on foreign goods, the difference must have been financed by taking out loans from foreigners (or, equivalently, by selling them some assets). Thus, the average American borrowed $1,346 from abroad in 2000. Fu Other Measures of Income The national income accounts include other measures of income that differ slightly in definition from GDP. It is important to be aware of the various mea- sures, because economists and the press often refer to them. To see how the alternative measures of income relate to one another, we start with GDP and add or subtract various quantities. To obtain gross national product (GNP), we add receipts of factor income (wages, profit, and rent) from the rest of the world and subtract payments of factor income to the rest of the world: GNP = GDP + Factor Payments From Abroad — Factor Payments to Abroad. Whereas GDP measures the total income produced domestically, GNP measures the total income earned by nationals (residents of a nation). For instance, if a Japanese resident owns an apartment building in NewYork, the rental income he earns is part of U.S. GDP because it is earned in the United States, But because this rental income is a factor payment to abroad, it is not part of US. GNP. In the United States, factor payments from abroad and factor payments to abroad are similar in size—each representing about 3 percent of GDP—so GDP and GNP are quite close. To obtain net national product (NP), we subtract the depreciation of capital— the amount of the economy's stock of plants, equipment, and residential struce tures that wears out during the year: NNP = GNP — Depreciation. In the national income accounts, depreciation is called the consumption of fixed capital. It equals about 10 percent of GNP. Because the depreciation 4 cost of producing the output of the economy, subtracting . the net result of economic activity. The next adjustment in the national income accounts is for indirect business taxes, such as sales taxes. These taxes, which make up about 10 percent of NNP. place a wedge between the price that consumers pay for a good and the price28] pan 1 Introduction cceive this x Wedge : ever rece \ firms ne Because axes from Nn "ot 7 cet bones 9 Fon NN anal income national NNP ~ Indirect Business Tage, Al Income Nation, much everyone in the economy al income rear its divide national income into ounts div national income acc The five Comp G = earned. The five SMtegories, ay, has the way the income pele ce J income paid in each category, are 1ge Of national income / employees (70%). The wages and fringe Compensation of employe benetits ¢, workers, (1%). The income of noncorporate busin, Proprietors” income (9%). The : cae mom-and-pop stores, and law p. I (2%).The income that landlords receiv Renal income (29)-The income th Puted rent that homeowners “pa preciation includ "to themselves, less expe > Comporate pris (12%). The income of corporations after workers and creditors, * Payments 6 4, Net interest (%).-The interest dom estic businesses they receive, plas interest ¢ Pay minus the arned from foreigners, iter A series of adjustments tak Tau of income that households and noncorporate these adjustments are most importany amount that corporations ¢ are retaining earnings or bee: Justment is made by ‘es us from national income ist, we reduce tn but do not pay ause they are national in Nome by g Out, cither because the Paying taxes to th, subtracting corporate profits (w Tate faxes, dividends, and retained earnings) and increase national income by the Payments. This adj insurance © government Thi. hich equals t adding back divide het amount the gove justment equals g contributions p ‘0 include the interest that households earn », Pay. This adjustment is made by adding personal interest jn Ret interest. (The difference between personal intense ani from the interest on the Sovernment debt.) Thus Personal Income = interest that busines: ncome and subir id net interest arises inp * Personal income is i National Income ~ Corporate Profits ~ Social Insurance Contributions ~ Net Interest + Dividends + Government Transfers to Individuals + Personal Interest Income,CHAPTER 2 The Data of Macroecono: x ct personal tax payments and certain nontax payments to the = has parking nckets), we obtai a income: Persor ncome = Personal Income — Pe sonal Tax and Nontax Payments. > because it is the amount house- We holds and noncorpors interested in disposable persona ate businesses have available to spend after satisfying their zations to the government,