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Chap 10, Mankiw – Measurement of national income

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Presentation on theme: "Chap 10, Mankiw – Measurement of national income"— Presentation transcript:

1 Chap 10, Mankiw – Measurement of national income
Introduction and definition of the GDP Gross domestic product – meaning of the term Circular flow diagram and the methods of calculating GDP Other measures of national income Quality of life and GDP

2 I. Introduction and definition of the GDP
National income can be defined in various ways. The GDP defintion is the most usual. GDP = market value marketed goods vs. non-marketed goods: final goods and services produced within a country:

3 II. 2 ways of measuring GDP:
expenditure method of calculating GDP: GDP = Y = C = consumption expenditure, I = investment expenditure, G = Government expenditure, X = exports, M = imports

4 2. income method of calculating GDP
add “value-added” by all firms together; value-added = sum of value added by all firms = Why?

5 Goods & Services bought
III.The Circular-Flow Diagram – equivalence of the 2 methods of measuring GDP Spending Revenue Market for Goods and Services Goods & Services sold Goods & Services bought Firms Households Wages, rent, and profit Income Labor, land, and capital Inputs for production Market for Factors of Production 7

6 III. Other ways of defining National Income
Gross National Product (GNP) Net National Product (NNP) National Income Personal Income Disposable Personal Income

7 Gross national product (GNP) is the total income
It differs from GDP by Net National Product (NNP) is the total income of Depreciation is the wear and tear on the economy’s NNP is an useful measure because

8 National Income (NI) is the total income earned by a nation’s
It differs from NNP by excluding this is excluded because Personal income (PI) is the total earnings that Unlike national income, it excludes In addition, it includes

9 Disposable personal income (DI) is the income
It equals personal income minus

10 IV. Adjusting GDP for inflation
Recap: GDP is measured at market prices which fluctuate form period to period Real GDP: Nominal GDP: GDP deflator =

11 Real and Nominal GDP

12 Real and Nominal GDP

13 Real and Nominal GDP

14 Real and Nominal GDP

15 V. Quality of life vs. GDP GDP is positively correlated with but not identical to economic well-being. Factors that creates a difference between the two:

16 GDP and Its Components (1998)
Government Purchases 18% Investment 16% Net Exports -2 % Consumption 68 %

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