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Chapter 15 Gross Domestic Product

Chapter 15 Gross Domestic Product. Key Concepts Summary Practice Quiz Internet Exercises. ©2000 South-Western College Publishing. In this chapter, you will learn to solve these economic puzzles:.

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Chapter 15 Gross Domestic Product

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  1. Chapter 15Gross Domestic Product • Key Concepts • Summary • Practice Quiz • Internet Exercises ©2000 South-Western College Publishing

  2. In this chapter, you will learn to solve these economic puzzles: Why doesn’t economic growth include increases in spending for welfare, Social Security, and unemployment programs? Can one newscaster report that the economy grew, while another reports for the same year that the economy declined, and both reports be correct? How is the calculation of national output affected by environmental damage?

  3. Who was Simon Kuznets? Published a report in 1934 titled National Income, 1929 -32, which explained the first national accounting system

  4. What is Gross Domestic Product? GDP is the most widely reported measure of a nation’s economic performance

  5. What does GDP measure? The market value of all final goods and services produced in a nation during a period of time, usually a year

  6. What is Gross National Product (GNP)? GNP measures the market value of all final goods and services produced by a nation’s residents, no matter where they are located

  7. What is an advantage of using GDP? GDP measures value using dollars, rather than a list of the number of goods and services

  8. Does GDP measure secondhand transactions? No, Current GDP does not include the sale of a used car or the sale of a home constructed some years ago

  9. What areIntermediate Goods? Goods and services used as inputs for production of final goods

  10. Does GDP count Intermediate Goods? No, to avoid double counting, GDP only measures final goods and services

  11. What are Final Goods? Finished goods and services produced for the ultimate user

  12. Does GDP measure nonproductive financial transactions? No, GDP does not count purely private or public financial transactions such as giving gifts, stocks, bonds, or transfer payments

  13. What is aTransfer Payment? A government payment to individuals, not in exchange for goods or services currently produced

  14. Does GDP measure the whole economy? Yes, GDP consists of many puzzle pieces to fit together, including markets for products, resources, consumers, workers, and businesses

  15. What is aCircular Flow Model? A model that show us how all the pieces of the puzzle fit together

  16. Productmarkets Supply Goods & Services Demand Spending Basic Circular Flow Model Businesses Households Demand Factor Payments Factormarkets Supply Factors of Production

  17. What is a Flow? A rate of change in a quantity during a given time period

  18. What is a Stock? A quantity measured at one point in time

  19. What additional sectors does a complex Circular Flow Model contain? • Financial markets • Government • Foreign markets

  20. What Leakages are present in the more Complex Model? • Household saving • Household taxes paid • Income spent on imports

  21. What Injections are present in the more Complex Model? • Business spending • Government spending • Foreign spending

  22. What point is the Economy tending toward? Where the dollar value of leakages equals the dollar value of injections

  23. What are the two approaches we use to measure GDP? Expenditure Income

  24. What is theExpenditure Approach? The national income accounting method that measures GDP by adding all the spending for final goods and services

  25. What are the four sectors of GDP? • Consumption • Investment • Government • Foreign (X - M)

  26. GDP = C + I + G + (X - M)

  27. GDP using the Expenditure Approach1998 National Income Accounts Percentage of GDP Consumption 68% Investment 15% Government 19% Exports - Imports -2%

  28. What is theIncome Approach? The method that measures GDP by adding all incomes

  29. What are the Income components of GDP? GDP = Compensation of employees + rents + profits + net interest + nonincome adjustments

  30. What areNonincome Adjustments? • Capital consumption allowances • Indirect business taxes

  31. GDP using the Income Approach1998 National Income Accounts Percentage of GDP Employee compensation 59% Rental income of persons 2% 16% Profits 5% Net interest Depreciation 11% Indirect business taxes 7%

  32. What is Compensation of Employees? Income earned from wages, salaries, and certain supplements paid to labor

  33. What is Rental Income of Persons? Rent and royalties received by property owners who permit others to use their assets

  34. What are Profits? Proprietors income Corporate profits

  35. What is Net Interest? Interest earned from loans to businesses

  36. What is Depreciation? An allowance for the capital worn out producing GDP

  37. What are Indirect Business Taxes? Taxes levied as a percentage of the prices of goods sold and therefore become a part of the revenue received by firms

  38. What are Shortcomings of GDP? • Nonmarket transactions • Distribution, kind, & quality of products • Neglect of leisure time • Underground economy • Economic bads

  39. What other national accounts measure economic performance? • Net National Product • National Income • Personal Income • Disposable Personal Income • Nominal and Real GDP • GDP Chain Price Index

  40. What is Net Domestic Product? NDP is GDP minus depreciation of the capital worn out in producing output

  41. What isNational Income? NI is the total earned by resource owners, including wages, rents, interest, and profits

  42. What isPersonal Income? PI is the total income received by households that is available for consumption, saving, and payment of personal taxes

  43. What is Disposable Personal Income? DI is the amount of income that households have to spend or save after payment of personal taxes

  44. What is Nominal GDP? The value of all final goods based on the prices existing during the time period of production

  45. What is Real GDP? The value of all final goods produced during a given time period based on the prices existing in a selected base year

  46. Real GDP = nominal GDP x 100 GDP price index

  47. What is theChain Price Index? A measure that compares changes in the prices of all final goods during a given period to the prices of those goods in a base year

  48. Key Concepts

  49. Key Concepts • Who was Simon Kuznets? • What is Gross Domestic Product? • What does GDP measure? • What is an advantage of using GDP? • Does GDP measure the whole economy? • What are the two approaches we use to measure GDP? • What is the Expenditure Approach?

  50. Key Concepts cont. • What are the four sectors of GDP? • What is the Income Approach? • What are the Income components of GDP? • What are Nonincome Adjustments? • What are Shortcomings of GDP? • What is Net Domestic Product? • What is National Income?

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