Measuring the Nation's Output and GDP: A Comprehensive Guide

1. Chapter 13 Economic Performance

2. 13/1 Measuring the Nation’s Output • Gross Domestic Product (GDP) • The dollar amount of all final goods services and structures produced within a country’s borders in a year. • This is the single most important measure of the economy’s overall economic performance.

3. National income accounting- system of accounting • NIPA (National Income and Product accounts) kept by the Dept of Commerce. • GAAP- “Generally Accepted Accounting Practices”

4. GDP- The Measure of National Output • Only things produced in the US- even if foreign owned • Does not include products made by US companies abroad

5. Computing GDP • Multiply the final goods and services in a given 12 month period by their prices to get the total value of their production. (GDP)

7. Some things are excluded • Intermediate products • Tires on new car • Second hand sales • Used car • Nonmarket transactions • Paying neighbor’s kid to cut your grass • Underground economy • Black market, illegal gambling, prostitution

9. Limitation of GDP • Generally an increase in GDP is good, but • GDP tells us nothing about the composition of output • GDP tells us little about the impact of production on quality of life • Still, GDP is our best measure of economic health. (impact on presidential elections)

10. GNP- Measure of National Income • GNP- the dollar value of all final goods, services and structures produced in one year with labor and property supplied by a country’s residents. • GNP is based on GDP, but • Measures goods produced outside of US by US firms. • Must subtract money made here by foreign firms. • Therefore: in a closed economy, one with no foreign business, GDP =GNP

11. Net National Product (NNP) • GNP minus depreciation • Depreciation represents the capital equipment that has worn out or become obsolete over the year.

12. National Income (NI) • NI is the income that is left after all taxes except corporate profits tax are subtracted from the NNP. • Examples • Indirect taxes • Excise taxes, business taxes, licensing fees, customs duties and general sales taxes

13. Personal Income (PI) • Total amount of income going to consumers before individual income taxes are subtracted.

14. Disposable Income (DI) • Total income the consumer sector has after personal taxes.

16. Economic Sectors and Circular Flows • Consumer Sector- • Households- persons who occupy separate residences, ie apartment, house, condo etc. • May be family or unrelated • Useful info because of durable goods impact

18. Investment Sector- Proprietorships, partnerships and corporations

19. Government Sector • Public Sector- all local, state and federal levels of government

20. Foreign Sector • Includes all producers and consumers outside of the United States.

21. The Output-Expenditure Model • Note: with GDP we are measuring output, you should be able give examples of the output of each. • GDP= C + I + G + ( X – M )

22. 13/2 GDP and Changes in price levels • Inflation • Price index- a statistical series that • can be used to measure changes in prices over time. • Can be for a specific item or list of items. • ie. CPI • Base year: • Market basket- selection of commonly purchased goods

24. Major Price Indices • Consumer Price index • Producer Price index • Implicit GDP Price deflator

26. Real vs Current GDP • Current GDP- GDP that is not adjusted to remove the effects of inflation • Real GDP- is GDP that has been adjusted for inflation (also called GDP in constant dollars)

28. We won’t concern ourselves with converting Current GDP to Real GDP

29. 13/3 GDP and Population • Rate at which population grows or decreases influences the GDP. Labor is one of the factors of production. • Changes in GDP and GNP can be distorted if population changes. Per capita is a much more accurate measure • Population growth or decline can affect the quality of life

30. Population in the US • Census- required by the Constitution • Census Bureau • Monthly surveys • Ten year census • 5 of 6 receive short form • 1 of 6 receive long form

31. Historical growth- Rate of population growth is declining. 2000-.9 percent • Why? • Regional changes • Center of population • 1790- 25 miles east of Baltimore • 2000 2.8 miles east of Edgar Springs, MO

33. Projected population trends • Is it important? • Factors affecting population growth • Fertility rates- number of births per 1000 women • Life expectancy- • 1900 was 45 years • 82.5 by 2050 • In US women have longer life expectancy than men. • Japan currently has the longest life expectancy

34. Net immigration • Immigrant v. emigrant • Projections by age and gender • Baby boomers 46-64

36. Population pyramid- • Bulge in the middle shows the baby boomers. • Dependency ratio- ratio based on the number of children and elderly per 100 people in the ages 18-64 • This number is on the rise. Why?

37. Projections by Race and Ethnic Origin • By 2050 • Asian pop will increase 5x • Hispanic population 2x • Blacks- slight increase • Whites- little change • By 2050- Whites only 50.7 percent of the population

39. 13/4 Economic Growth • Because of population changes, GDP and GNP do not tell the whole story. • Real GDP per capita- amount produced on a per person basis is a better indicator of growth/decline. • Divide Real GDP by population gives us the Real GDP per capita

41. Growth triangle- table that shows annual compound rates of growth between selected periods of time.

43. Importance of Economic Growth • Standard of living • Government spending • Domestic Problems • Helping other nations • Global role model

44. Factors influencing economic growth • Land • Capital • Labor • Entrepreneurs • Labor productivity- the amount of output produced per unit of labor input.

46. As productivity grows, the entire economy benefits.