Chapter 7. National Income Accounting

1. Dr. Tufte's ECON 2020 PowerPoint slides to accompany Colander's text. 1 Chapter 7. National Income Accounting 7.A. National Income Accounting 7.B. Two Methods of Calculating GDP 7.C. Using GDP Figures 7.D. Some Limitations of National Income Accounting

2. Dr. Tufte's ECON 2020 PowerPoint slides to accompany Colander's text. 2 7.A. National Income Accounting When did economists start thinking about measuring economies? What theory motivated them? Who won Nobel prizes for this work? 7.A.1. Measuring Total Economic Output of Goods and Services 7.A.2. Calculating GDP

3. Dr. Tufte's ECON 2020 PowerPoint slides to accompany Colander's text. 3 7.A.1. Measuring Total Economic Output of Goods and Services What is the primary measure of national output? What is the measure of what is produced inside a country? What is the measure of what is produced by a country’s citizens? What is the difference between these called? Is it large for the U.S.? How about other countries?

4. Dr. Tufte's ECON 2020 PowerPoint slides to accompany Colander's text. 4 7.A.2. Calculating GDP Why do we measure GDP in terms of money? What is a flow? List some. What is a stock? List some. Is GDP a flow or a stock? Are all goods counted in GDP? What does this have to do with double counting and value added?

5. Dr. Tufte's ECON 2020 PowerPoint slides to accompany Colander's text. 5 7.B. Two Methods of Calculating GDP Should these yield the same answer? In practice, do they? Are they close? 7.B.1. The National Income Accounting Identity 7.B.2. The Expenditures Approach 7.B.3. The Income Approach 7.B.4. Equality of Income and Expenditure 7.B.5. Other National Income Terms

6. Dr. Tufte's ECON 2020 PowerPoint slides to accompany Colander's text. 6 7.B.1. The National Income Accounting Identity For the most part, is everything that is produced sold? So, what is the relation between output and expenditures? Are the proceeds from sales someone’s income? So, what is the relation between income and expenditures? What about output?

7. Dr. Tufte's ECON 2020 PowerPoint slides to accompany Colander's text. 7 7.B.2. The Expenditures Approach What are the four classes of expenditures? What is the primary determinant for assigning an expenditure to one class or another? What is a secondary determinant? Does this have anything to do with Keynsianism?

8. Dr. Tufte's ECON 2020 PowerPoint slides to accompany Colander's text. 8 7.B.2. Continued Where are new residential house purchases counted? Where are transfer payments counted? Where is “wear and tear” on machinery counted?

9. Dr. Tufte's ECON 2020 PowerPoint slides to accompany Colander's text. 9 7.B.2. Continued What is the largest of the four expenditure categories? Which is the most volatile? Does the U.S. trade as much as other countries?

10. Dr. Tufte's ECON 2020 PowerPoint slides to accompany Colander's text. 10 7.B.3. The Income Approach What are the four big classes of income? Which is by far the largest?

11. Dr. Tufte's ECON 2020 PowerPoint slides to accompany Colander's text. 11 7.B.4. Equality of Income and Expenditure Are most taxes paid by firms ultimately remitted to citizens as income? Are all of them? If you receive money, buy food with it, and consume it - is it income? If money is dedicated to maintaining a machine, oil is bought with it, and the machine consumes it - is that income? If not, what is it?

12. Dr. Tufte's ECON 2020 PowerPoint slides to accompany Colander's text. 12 7.B.5. Other National Income Terms Is GDP the same as what individuals earn? How does it differ? Is income the same as what individuals have to spend? How does it differ?

13. Dr. Tufte's ECON 2020 PowerPoint slides to accompany Colander's text. 13 7.C. Using GDP Figures How do we measure quality of life between countries and times? 7.C.1. Comparing GDP among Countries 7.C.2. Economic Welfare over Time 7.C.3. Real and Nominal GCP

14. Dr. Tufte's ECON 2020 PowerPoint slides to accompany Colander's text. 14 7.C.1. Comparing GDP among Countries How do we adjust GDP for the size of a country? What is the result called? Do GDP comparisons exaggerate differences in well-being? Why? What do we call the improved measure of well-being? What is it trying to capture?

15. Dr. Tufte's ECON 2020 PowerPoint slides to accompany Colander's text. 15 7.C.2. Economic Welfare over Time Is the popular conception that the “good old days” were better or worse than now? If this is true, should society be getting continually better or worse? Do you work more or less than your grandparents? Expect to live longer or shorter? Does GDP seem like a more objective measure?

16. Dr. Tufte's ECON 2020 PowerPoint slides to accompany Colander's text. 16 7.C.3. Real and Nominal GDP Which is more important to your well-being, the number of pieces of paper called dollars in your pocket, or the value of stuff that they can actually buy you? Which of those ideas is nominal and which is real? To measure economic well-being, should we use nominal or real GDP? If there is inflation, which is growing faster, nominal or real GDP?

17. Dr. Tufte's ECON 2020 PowerPoint slides to accompany Colander's text. 17 7.D. Some Limitations of National Income Accounting Is GDP perfect? 7.D.1. GDP Measures Market Activity, not Welfare 7.D.2. Measurement Errors 7.D.3. Misinterpretation of Subcategories 7.D.4. Genuine Progress Indicators

18. Dr. Tufte's ECON 2020 PowerPoint slides to accompany Colander's text. 18 7.D.1. GDP Measures Market Activity, not Welfare Are there welfare improving activities that do not show up in the market? Name some. Are there market activities that add to GDP that are not beneficial? If there is a natural disaster that destroys wealth, what is likely to happen to GDP?

19. Dr. Tufte's ECON 2020 PowerPoint slides to accompany Colander's text. 19 7.D.2. Measurement Errors Are some activities intentionally hidden, and therefore not counted in GDP? Name some? How significant are these activities? If computers become both faster and cheaper, are we better off? Will GDP reflect his accurately?

20. Dr. Tufte's ECON 2020 PowerPoint slides to accompany Colander's text. 20 7.D.3. Misinterpretation of Subcategories If investment increases, should GDP go up in the future? What if investment went up because you bought a house that was expensive because it had nice amenities? If consumption goes up, should GDP go up in the future? What if you buy something for your home that helps you work?

21. Dr. Tufte's ECON 2020 PowerPoint slides to accompany Colander's text. 21 7.D.4. Genuine Progress Indicators Should we subtract negative externalities from GDP? Such as? Does counting those make the U.S. seem richer or poorer than before? If we subtract negative externalities, should we add back in positive externalities? Such as? Does this make us look richer or poorer?