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National Income Accounting

National Income Accounting. Taking the Temperature of the Economy. Gross Domestic Product. All final goods and services produced within the nation 3 requirements Final goods Produced during that time period Produced within the nation’s borders. Does it Belong in GDP?. 3 requirements

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National Income Accounting

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  1. National Income Accounting Taking the Temperature of the Economy

  2. Gross Domestic Product • All final goods and services produced within the nation • 3 requirements • Final goods • Produced during that time period • Produced within the nation’s borders

  3. Does it Belong in GDP? • 3 requirements • Final goods • In time frame • In the country • Money paid by shoppers in New York for Corn Grown in Iowa • Money paid by a computer factory in New Mexico for computer chips produced in California • Money paid by shoppers in Florida for jeans manufactured in Mexico by a company headquartered in North Carolina • Fees charged to patients by a dentist in Texas • Cost of processing wood pulp into paper at a factory in Maine • Money paid by buyers in Indiana for cars made by a Japanese Company at a factory in Kentucky

  4. Calculating the GDP • How should we do it? • Income Approach • Expenditures Approach • Group into 4 sectors of the Economy

  5. GDP = C… • Consumption • Spending by households • Durable Goods • Non-Durable Goods • Services

  6. GDP = C + I… • Investment • Business Spending • Fixed Investment • New construction • Capital Goods • Inventory Investment

  7. GDP = C + I + G… • Government Spending • Goods and services • Transfer Payments are not included • Social Security • Unemployment

  8. GDP = C + I + G + (X-M) • Net Exports • Exports - Imports • Why?

  9. Checkpoint Questions • Durable goods, non-durable goods and services are all part of? • How do you calculate net exports? • Why is social security not included in government spending figures?

  10. GDP Isn’t Perfect • GDP does NOT measure • Nonmarket Activities • Underground Economy • Quality of Life After sifting all this information, Greenfield concludes that the total value of underground economic activity in the United States was $337 billion in 1990 (6.2 percent of GDP). Of this, about $268 billion is estimated to be from unreported legal-source income, and the rest from illegal activities. Such a percentage would put the U.S. underground economy slightly below the median estimate for the major industrial countries. -Invisible, Outlawed and Untaxed: America's Underground Economy

  11. Justin WolfersFreakonomics Blog • http://www.youtube.com/watch?v=77IdKFqXbUY&feature=player_embedded

  12. Do we need a new measure?

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