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1 Measuring a Nations Income Professor Chris Adam Australian Graduate School of Management University of Sydney and University of New South Wales.

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Presentation on theme: "1 Measuring a Nations Income Professor Chris Adam Australian Graduate School of Management University of Sydney and University of New South Wales."— Presentation transcript:

1 1 Measuring a Nations Income Professor Chris Adam Australian Graduate School of Management University of Sydney and University of New South Wales

2 2 INTRODUCTION Macroeconomics – study of economy as a whole –Explain economic changes that affect many households, firms and markets at once Consider data that are used to monitor overall economy

3 3 GROSS DOMESTIC PRODUCT GDP –Total income of everyone working in economy –Total expenditure on economys output of goods and services For economy as a whole, income must equal expenditure Circular flow diagram

4 4 GROSS DOMESTIC PRODUCT GDP is … the market value …use of prices … of all …external sales; imputation … final …vs intermediate … goods and services …tangibles and intangibles … produced …current production … within a country …vs Gross National Product … in a given period of time.quarterly; annually

5 5 COMPONENTS OF GROSS DOMESTIC PRODUCT Algebra! Y = C + I + G + NX Y is GDP C is consumption: household spending I is investment: spending that creates future income G is government: spending by government NX is net exports: exports (foreign-purchased, domestic- produced g&s) minus imports (domestic-purchased, foreign-produced g&s)

6 6 MEASURING GDP Three methods: –GDP expenditure: method described above –GDP income: sum of factor incomes, consumption of fixed capital, net indirect taxes –GDP production: market value of g&s produced minus cost of g&s used (intermediate production); also called value added

7 7 DATA

8 8

9 9

10 10 DATA

11 11 DATA

12 12 DATA

13 13 DATA

14 14 DATA

15 15 DATA

16 16 DATA

17 17 REAL vs NOMINAL GDP Increase of GDP(E) over time –We produced more g&s at the same prices? –We paid more for the same g&s? –Some combination? Nominal GDP: value of g&s produced now using current prices Real GDP: value of g&s produced now using previous (unchanging) prices

18 18 REAL vs NOMINAL GDP Nominal GDP GDP deflator = x 100 Real GDP Real GDP has grown over time but not constantly GDP not measure beauty of our poetry, but can tell us if we can afford poetry

19 19 WHAT GDP MISSES Leisure reduction increases GDP but may reduce well-being Removal of environmental regulation may increase GDP but reduce quality of environment Use of market prices excludes non- market activities


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