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3.1 Measuring National Income. Circular Flow of Income. National income Sum of all final goods and services produced in an economy during a given time period. (1yr) E=O=Y. Simple Two-Sector Model. Leakages? Injections? What is missing? Total injections= Total Leakages. Transfer Payments.

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3.1 Measuring National Income

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3 1 measuring national income l.jpg

3.1 Measuring National Income


Circular flow of income l.jpg

Circular Flow of Income

  • National income

    • Sum of all final goods and services produced in an economy during a given time period. (1yr)

    • E=O=Y


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Simple Two-Sector Model


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Leakages?

Injections?

What is missing?

Total injections= Total Leakages


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Transfer Payments

  • How are welfare, education, social programs accounted for?

  • Rule: Only expenditure flows which have a corresponding output are counted.


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Methods of Measurement

  • Factor Income: Total payments for FOP

    • Employment

    • Rental Income

    • Profits

    • Interest

    • Subtract stock appreciation

    • =GDP at factor cost


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  • Expenditure Method: Total Expenditure

    • Consumtion (C)

    • Investments (I)

    • Government Expend. (G)

    • Exports (X)

    • Subtract Imports (M)

    • Add subsidies

    • =GDP(same as factor cost)


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  • Output Method

    • Value-added at each level of output (to avoid double counting)


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National and Domestic Product

  • GDP=output created using Domestic FOP

  • How do you deal with foreign owned companies within economy?

  • Domestic assets held abroad?

  • GNP (Gross National Product)

    = GDP+Net property income from abroad


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  • LDC= GDP>GNP Why?

    • They have few companies abroad that are repatriating income.

  • MDC=GNP>GDP

    • Many companies abroad


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Gross and Net National Product

  • NNP= GNP-Depreciation


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Nominal vs. Real

  • Nominal= face value

  • Real= adjusted for inflation

  • GDPr= GDPnom/CPI X 100


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Consumer Price Index (CPI)

  • Base Line= 100

  • CPI of 106 = 6% increase in prices


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GDP Deflator

  • CPI: only consumer goods

  • GDP Deflator: All goods in GDP

  • GDPreal = GDP nom / Deflator X 100


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Total and Per Capita

  • Income per capita = GDP/population

  • Real Income per capita: adjusted for inflation

  • Which countries do you think are in the top ten by GDP per capita?


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GDP by Country

USA 32.9% 4.65% Japan 13.4% 2.09% Germany 6.0% 1.36% Britain 4.6% 0.99% France 4.2% 0.97% China 3.7% 20.84% Italy 3.5% 0.95% Canada 2.3% 0.51% Mexico 2.0% 1.62% Spain 1.9% 0.65%


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