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.

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Presentation Transcript
circular flow of 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
slide4
Leakages?

Injections?

What is missing?

Total injections= Total Leakages

transfer payments
Transfer Payments
  • How are welfare, education, social programs accounted for?
  • Rule: Only expenditure flows which have a corresponding output are counted.
methods of measurement
Methods of Measurement
  • Factor Income: Total payments for FOP
    • Employment
    • Rental Income
    • Profits
    • Interest
    • Subtract stock appreciation
    • =GDP at factor cost
slide7
Expenditure Method: Total Expenditure
    • Consumtion (C)
    • Investments (I)
    • Government Expend. (G)
    • Exports (X)
    • Subtract Imports (M)
    • Add subsidies
    • =GDP(same as factor cost)
slide8
Output Method
    • Value-added at each level of output (to avoid double counting)
national and domestic product
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

slide10
LDC= GDP>GNP Why?
    • They have few companies abroad that are repatriating income.
  • MDC=GNP>GDP
    • Many companies abroad
gross and net national product
Gross and Net National Product
  • NNP= GNP-Depreciation
nominal vs real
Nominal vs. Real
  • Nominal= face value
  • Real= adjusted for inflation
  • GDPr= GDPnom/CPI X 100
consumer price index cpi
Consumer Price Index (CPI)
  • Base Line= 100
  • CPI of 106 = 6% increase in prices
gdp deflator
GDP Deflator
  • CPI: only consumer goods
  • GDP Deflator: All goods in GDP
  • GDPreal = GDP nom / Deflator X 100
total and per capita
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
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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