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# 3.1 Measuring National Income - PowerPoint PPT Presentation

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

### 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

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

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

### Methods of Measurement

• Factor Income: Total payments for FOP

• Employment

• Rental Income

• Profits

• Interest

• Subtract stock appreciation

• =GDP at factor cost

• Expenditure Method: Total Expenditure

• Consumtion (C)

• Investments (I)

• Government Expend. (G)

• Exports (X)

• Subtract Imports (M)

• =GDP(same as factor cost)

• Output Method

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

### National and Domestic Product

• GDP=output created using Domestic FOP

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

• GNP (Gross National Product)

= GDP+Net property income from abroad

• LDC= GDP>GNP Why?

• They have few companies abroad that are repatriating income.

• MDC=GNP>GDP

### Gross and Net National Product

• NNP= GNP-Depreciation

### Nominal vs. Real

• Nominal= face value

• GDPr= GDPnom/CPI X 100

### Consumer Price Index (CPI)

• Base Line= 100

• CPI of 106 = 6% increase in prices

### GDP Deflator

• CPI: only consumer goods

• GDP Deflator: All goods in GDP

• GDPreal = GDP nom / Deflator X 100

### 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?

### 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%