measuring gdp the income approach l.
Download
Skip this Video
Loading SlideShow in 5 Seconds..
Measuring GDP: The Income Approach PowerPoint Presentation
Download Presentation
Measuring GDP: The Income Approach

Loading in 2 Seconds...

play fullscreen
1 / 27

Measuring GDP: The Income Approach - PowerPoint PPT Presentation


  • 1137 Views
  • Uploaded on

Measuring GDP: The Income Approach Claudia Garcia-Szekely Measuring Economic Activity There are several ways of measuring economic activity: The expenditures Approach: Measures expenditures by all sectors in the economy.

loader
I am the owner, or an agent authorized to act on behalf of the owner, of the copyrighted work described.
capcha
Download Presentation

PowerPoint Slideshow about 'Measuring GDP: The Income Approach' - albert


An Image/Link below is provided (as is) to download presentation

Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author.While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server.


- - - - - - - - - - - - - - - - - - - - - - - - - - E N D - - - - - - - - - - - - - - - - - - - - - - - - - -
Presentation Transcript
measuring gdp the income approach

Measuring GDP: The Income Approach

Claudia Garcia-Szekely

©2000Claudia Garcia-Szekely

measuring economic activity
Measuring Economic Activity

There are several ways of measuring economic activity:

  • The expenditures Approach: Measures expenditures by all sectors in the economy.
  • The Incomes Approach: measures incomes received by all participants in the economy
  • The Value Added Approach: measures the value each firm adds to intermediate goods at each stage of production

©2000Claudia Garcia-Szekely

distribution of income generated from production

GDP

Total Income from Production

National Income

Government

Depreciation

Rest of The World

Indirect Taxes-Subsidies

(Wages, Interest, Rents and Profits)

Net Factor payments to ROW

Distribution of Income Generated from Production

Income put aside to replace equipment

What people receive

What the Government receives

Income paid to the Rest of World

©2000Claudia Garcia-Szekely

national income
National Income

What people receive

©2000Claudia Garcia-Szekely

national income5
National Income

What people receive

  • Payments to workers (wages, salaries)
  • Incomes to small business owners (proprietor's income)
  • Corporate Profits
  • Interest* (paid by business)
  • Rental income.

How Income is earned

©2000Claudia Garcia-Szekely

government
Government

What the Government receives

©2000Claudia Garcia-Szekely

the income approach
The Income Approach

GDP = National Income + Indirect Taxes…

  • Indirect taxes (sales tax, etc) are not paid as income to households but form part of the income generated from production.

©2000Claudia Garcia-Szekely

the income approach8
The Income Approach

GDP = National Income + (Indirect Taxes – Subsidies)…

Subsidies are subtracted

from taxes to obtain the “net”

amount taken by the government not

paid to households as income.

©2000Claudia Garcia-Szekely

depreciation
Depreciation

©2000Claudia Garcia-Szekely

the income approach10
The Income Approach

GDP = National Income + (Indirect Taxes – Subsidies) + Depreciation …

Depreciation is not “Income to households”

but it is part of the

Income generated from production.

©2000Claudia Garcia-Szekely

net factor payments to the rest of the world
Net Factor Payments to the Rest of the World

Income paid to the Rest of World

©2000Claudia Garcia-Szekely

factor payments to rest of the world row
Factor Payments to Rest of the World (ROW)

Income generated in the US that leaves the US

  • Income paid to foreign owned resources located in the US.
  • These payments are made to the rest of the world and do not stay in the US as income to nationals.

©2000Claudia Garcia-Szekely

receipts of factor income from the row
Receipts of Factor Income from the ROW

Income generated outside the US that enters the US

  • Income received from the ROW as payments to US-owned resources located in other countries.
  • This income received by US nationals from other countries did not originate in US production (GDP)

©2000Claudia Garcia-Szekely

the income approach14
The Income Approach

GDP = National Income + (Indirect Taxes – Subsidies) + Depreciation + Net Factor payments to Rest of the World

©2000Claudia Garcia-Szekely

net factor payments payments receipts

Income generated outside the US that enters the US

Income generated in the US that leaves the US

Net Factor Payments = Payments - Receipts

These net payments made to other countries constitute U.S. generated income that does not stay in the U.S. These payments must be added to National Income to get the total income generated from production in the U.S.

©2000Claudia Garcia-Szekely

what if receipts are greater than payments

What if Receipts are greater than Payments?

In this case, Payments – Receipts will be a negative number and instead of adding we would subtract…

Suppose that the U.S. does not make any payments to the ROW but the ROW does make payments to the U.S.?

©2000Claudia Garcia-Szekely

circular flow diagram

Taxes

pay

Receipts

$

Payments

Subsidies

Depreciation

Indirect

National Income

Interest

Rent

Profits

Wages

Circular Flow Diagram

Net Pay

Rest of World

Firms

$Goods and Services

Net tax

circular flow diagram18

NetPayments

$

Depreciation

Government

Ind. Tx - Subs.

GDP = National Income + Depreciation + (Indirect Taxes – Subsidies) + Net Factor Payments to Rest of the World

National Income

Circular Flow Diagram

Interest

Rent

Profits

Wages

Rest of World

$Goods and Services

GDP

from gross to net
From Gross to Net

Gross Domestic Product

Net Domestic Product

Subtract Depreciation

Gross Domestic Product

Net Domestic Product

Add Depreciation

©2000Claudia Garcia-Szekely

from domestic to national
From Domestic to National

Gross Domestic Product

Gross Domestic Product

Add Receipts from ROW

Subtract Payments to ROW

Subtract Net Payments to the Rest of the World

Subtract Receipts from ROW

Add Payments to ROW

ADD Net Payments to the Rest of the World

Gross National Product

Gross National Product

©2000Claudia Garcia-Szekely

gdp measured as income
GDP Measured as Income

Tax

Interest

Rent

Depreciation

Profits

Wages

Net Income

From abroad

Proprietors’ Income

©2000Claudia Garcia-Szekely

print to read
Print to Read
  • http://www.bea.doc.gov/bea/dn1.htm
    • Latest NIPA tables for GDP
    • Interactive NIPA Tables
      • Choose a table from a list of All NIPA Tables
        • Table 1.7.5 Relation GDP, GNP, NNP, NI and PI
        • Table 1.12 National Income by type of income: Quarterly 2001 – 2003

DO NOT FORGET TO CHOOSE:

File

Page Setup

Landscape

Print

©2000Claudia Garcia-Szekely

value added approach
Value Added Approach

The difference in value between what a firm pays for intermediate goods and what it receives for the finished product is called the firm’s Value Added.

The Value Added Approach to measuring GDP is the sum of the values added by all firms.

©2000Claudia Garcia-Szekely

value added approach24
Value Added Approach

Value Added = Firms’ revenues – cost of intermediate goods.

Value Added = Total Sales – cost of intermediate goods.

©2000Claudia Garcia-Szekely

value added approach25

Value Added Approach

GDP = Sum of value added by all firms at each stage of production.

©2000Claudia Garcia-Szekely

example
Example
  • The Economy produces three goods: wheat, flour and bread.
  • Final consumers purchase part of the flour and all the bread but none of the wheat.

©2000Claudia Garcia-Szekely

slide27

=Total Sales – cost of intermediate goods.

Wheat industry does not buy intermediate goods

Value added by Wheat Industry

Value added by Flour Industry

Value added by Bread Industry