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Slides for Part I
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National Income Accounting (NIA) NIA is the measurement of aggregate or total economic activity
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We measure stock variables at a specific point in time; whereas flows are measured per unit of time. Flows include: Income Sales revenue Output Stocks include: Checking account balance Balance owed on student loans Inventories We measure economic activity as a flow.
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GDP is the market value of new goods and services produced in the economy in one year with the use of both domestic and foreign-owned economic resources. GDP is our basic measure of economic activity
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Three approaches to measuring GDP b The value-added approach b The final goods approach b The income approach
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Value-added is the increase in the market value of a good that takes place at each stage of the production -distribution process.
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àStage 1: Farmer grows wheat, sells it to the Miller for 55 cents. àStage 2: Miller mills the wheat, sells it to the Baker for 85 cents--hence value-added at the milling stage is 30 cents. àStage 3: Baker bakes the bread--sells it to the supermarket for $1.45--hence value-added at the baking stage is 60 cents. àStage 4: Supermarket sells the bread to the consumer for $1.65--hence value added at the retailing stage is 20 cents.
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To count the loaf of bread in GDP, we count the final transaction only. Otherwise, we would be counting value-added twice.
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Here we simply add up all expenditures for new goods and services in one year GDP = C + I + G + X Where, C is personal consumption expenditure; I is gross private domestic investment; G is government expenditure (local, state, and federal); and X is net exports, or Exports minus Imports
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Definitions áCapital consumption allowance (CCA):A monetary measure of the depreciation of the capital stock in a year due to normal wear and tear, fires, or other accidents. áNet Investment: Gross Investment minus CCA. áIndirect business taxes: taxes collected by businesses for government units, such as taxes on entertainment, motels, groceries, liquor, cigarettes, or gasoline taxes. Also called excise taxes. áNet income earned abroad: Income earned by domestic residents in foreign factor markets minus income earned by foreigners in domestic factor markets.
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This mainly involves summing up income earned in factor markets GDP = Wages & Salaries + interest + rent + profits - net income earned abroad + CCA + indirect business taxes
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Two Approaches to U.S. GDP, 1999 b Final Goods (in billions) b Consumption $6,257 b Investment 1,623 b Government Expenditures 1,630 b Exports 998 b Imports - 1,252 b Total $9,256 b Income Approach (in billions) b Employee compensation $5,331 b Profits, rents, interest, etc. @ 3,209 b Indirect business taxes 716 b Total $9,256 @ includes capital consumption adjustment and statistical discrepancy
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All data in billions of current dollars Relation of GDP to GNP, NNP, National Income, and Personal Income
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All data in billions of dollars From National Income to Personal Income www.bea.gov
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Personal disposable income (PDI) Personal income $7,792 Less: Personal tax payments 1,152 Equals: PDI $6,640 PDI is the obviously one measure of ready spending power of the household sector
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