2. MEASURING DOMESTIC OUTPUT AND NATIONAL INCOME Pertemuan 4 Matakuliah: J0594-Teori Ekonomi Tahun: 2009

3. Bina Nusantara University 3 Gross Domestic Product Gross Domestic Product (GDP) is measure of the total market value of all final goods and services produced by the economy in given year A monetary Measure Exp : Avoiding Multiple Counting To avoid counting those component each time, GDP includes only the market value of final goods and ignore intermediate goods altogether Year Annual OutputMarket value 1212 3 sofas and 3 computers 2 sofas and 3 computers 3 at $500 + 2 at $2000= $5000 2 at $500 + 3 at $2000= $7000

4. Bina Nusantara University 4 Gross Domestic Product Consumption expenditures by households plus Iinvestment expenditures by business plus Government purchases of goods and services plus Expenditures by foreigner = GDP= Wages plus Rents plus Interest plus Profit plus Statistical adjustment Expenditures, or Output Approach Income or Allocations Approach`

5. Bina Nusantara University 5 Expenditure Approach January 1 Year’s GDP December 31 Consumption & Government Spending Depreciation Net Investment Gross Investment Stock of Capital Increased Stock of Capital Gross Investment Depreciation Net Investment - =

6. Bina Nusantara University 6 The Expenditures Approach GDP = C + I g + G + X n C = Expenditures I g = Gross Private Domestic Invesment G = Government Purchases X n = Net Exports

7. Bina Nusantara University 7 The Expenditures Approach Personal Consumption Expenditures C Durable Consumer Goods Nondurable Consumer Goods Consumer Expenditures for Services Gross Private Domestic Investment I g Machinery, Equipment, and Tools All Construction Changes in Inventories Noninvestment Transactions Government Purchases G Expenditures for Goods and Services Expenditures for Social Capital Net Exports X n X n = Exports (X) – Imports (M)

8. Bina Nusantara University 8 The Income Approach Compensation of Employees Rents Interest Proprietor’s Income Corporate Profits Corporate Income Taxes Dividends Undistributed Corporate Profits Taxes on Production and Imports

9. Bina Nusantara University 9 The Income Approach From National Income to GDP –Net Foreign Factor Income –Statistical Discrepancy –Consumption of Fixed Capital Other National Accounts –Net Domestic Product (NDP) –National Income (NI) –Personal Income (PI) –Disposable Income (DI) DI = C + S

10. Bina Nusantara University 10 The Income Approach Gross Domestic Product (GDP)………. Consumption of Fixed Capital……... Net Domestic Profit (NDP)…………….. Statistical Discrepancy………………… Net Foreign Factor Income ………… National Income (NI)……………………. Taxes on Production and Imports… Social Security Contributions…….. Corporate Income Taxes ………….. Undistributed Corporate Profits …. Transfer Payments ………………….. Personal Income (PI)…………………… Personal Taxes ………………………. Disposable Income (DI) ……………….. $ 12,487 -1,574 $ 10,913 -43 34 $ 10,904 -917 -871 -378 -460 +1,970 $ 10,248 -1,210 $ 9,038

11. Bina Nusantara University 11 GDP Approaches Compared Compensation Rents Interest Proprietor’s Income Corporate Profits Taxes on Production and Imports National Income Net Foreign Factor Income Statistical Discrepancy Consumption of Fixed Capital Gross Domestic Product $ 7125 73 498 939 1352 917 $10,904 -34 43 1574 $ 12,487 Personal Consumption (C) Gross Private Domestic Investment (I g ) Government Purchases (G) Net Exports (X n ) Gross Domestic Product Accounting Statement for the U.S. Economy, 2005 (in Billions) Receipts Expenditures Approach Allocations Income Approach $ 8746 2105 2363 -727 $ 12,487