1. Gross Domestic Product Accounting
Chapter 5:
Gross Domestic Product Accounting
4/9/2019

2. GDP:
GDP or Gross Domestic Product is the total value, measured in current prices, of all final goods and services, produced in the economy, during a given year.

3. What Approaches are used to measure GDP?
Expenditure
Income

4. Why Expenditure and Income?
Because when someone spends money that money is income to someone else

5. The Circular Flow Model:
Wages, Rent, Interest & Profit
Resource Market
Labor, Land, Capital & Entrepreneurship.
Goods and Services.
Product Market
Consumer spending for goods & services

6. Total Income Generated
Expenditure Approach
$.50
$1.00
Salt
$.08
Income Approach
$.12
$.30
Total Income Generated
Flour
=$.30+$.08+$.12
+$.50
Dairy
=$1.00

7. Market Value & Value Added of Goods Produced

8. Market Value & Value Added of Goods Produced

9. Goods used to produce other goods.
Final Goods:
Goods purchased for final use, not for resale.
Intermediate Goods:
Goods used to produce other goods.
Value Added:
The difference between the value of a good that a firm produces & the value of the goods the firm uses to produce it.

10. What is the Expenditure Approach?
A method of calculating GDP that adds all expenditures made for final goods and services by households, firms, & government

11. GDP = C + I + G + (X-M) Expenditure Approach Investment
Exports - Imports
Gross Private Domestic Investment
Net Exports
Consumption
Government
Personal Consumption Expenditure
Government Purchases

12. What is the largest component of GDP?
Consumption

13. What do Consumers spend their money on?
Durable Goods
Nondurable Goods
Services
U.S. Department of Commerce

14. What is Gross Private Domestic Investment?
Businesses purchase such things as plants & equipment, houses & apartment buildings, and changes in inventory

15. What are Government Purchases?
military hardware
computers
military food & clothing
highways & education

16. Why do we include Exports in GDP?
Because they are produced domestically

17. Why are Imports not added to U.S. GDP?
Because they are produced abroad

18. Expenditure Approach to 1996 GDP ($ Billions)

19. Tell me where it belongs:
Produced in Kansas City
Should the toaster be considered as a part of U.S. GDP?
Yes
Which component of U.S. GDP accounts for it?
Sold to a Kansas City Household
Consumption Expenditure

20. Tell me where it belongs:
Produced in Kansas City
Should the toaster be considered as a part of U.S. GDP?
Yes
Which component of U.S. GDP accounts for it?
Sold to a Kansas City Restaurant
Investment Expenditure

21. Tell me where it belongs:
Produced in Kansas City
Should the toaster be considered as a part of U.S. GDP?
Yes
Which component of U.S. GDP accounts for it?
Sold to a Household in Toronto, Canada.
Exports

22. Tell me where it belongs:
Produced in Toronto, Canada
Should the toaster be considered as a part of U.S. GDP? No
Which component of U.S. GDP accounts for it?
Sold to a Kansas City Household
Imports

23. Tell me where it belongs:
Produced in Kansas City
Should the toaster be considered as a part of U.S. GDP?
Yes
Which component of U.S. GDP accounts for it?
Bought and used by a U.S. Naval Base in Hawaii
Government Expenditure

24. Income Approach:
A method of calculating GDP that adds all the incomes earned in the production of final goods and services

25. Who earns income? Labor - compensation to employees Capital - interest
Land - rent
Entrepreneurship - profit

26. 1996 National Income ($ Billions)

27. An Expanded Circular Flow
Gottheil 2e Comprehensive (Exhibit 20.Added Perspective), Micro (Exhibit —), Macro (Exhibit 5.Added Perspective)
©2000 South-Western College Publishing
120

28. What is GNP or Gross National Product?
The market value of all final goods and services in an economy produced by resources owned by the people of that economy

29. What is Depreciation?
The value of capital stock used up during a year in producing GDP

30. Bringing GDP & National Income into accord:
+ Net Factor Payments from Abroad
= GNP
GNP - Depreciation
= NNP
Net National Product
NNP - Indirect Business Taxes
= National Income

31. Reconciliation between GNP and NI: