Mesuring Economic Activity

Mesuring Economic Activity

GDP

Total market value of the final goods and services produced within a nation during a given year

A country produces with its land, labor, and capital resources.

Mesures the overall performance of an economy

GDP = C + I + G + X

Two Measures of National Product

Goods Flow

Earnings OR Income Flow

The gross domestic product is defined as the total money value of the flow of final products produced by the nation

The total of factor earnings (wages, interest, rents, and profi ts) that are the costs of producing society’s fi nal products.

They have to be equivalent

NATIONAL ACCOUNTS

Real vs. Nominal GDP

The difference between them is the deflator

Nominal GDP ( PQ ) represents the total money value of fi nal goods and services produced in a given year, where the values are expressed in terms of the market prices of each year.

Real GDP ( Q ) removes price changes from nominal GDP and calculates GDP in terms of the quantities of goods and services.

Consumption

3 categories: durable goods such as automobiles, nondurable goods and services

Investment and Capital Formation

Consists of the additions to the nation’s capital stock of buildings, equipment, software, and inventories during a year.

Net vs. Gross Investment.

Gross investment is not adjusted for depreciation, which measures the amount of capital that has been used up in a year

Government Purchases

Some government purchases are consumption-type goods (like food for the military), while some are investment-type items (such as schools or roads)

Exclusion of Transfer Payments

Government transfer payments are payments to individuals that are not made in exchange for goods or services supplied

Net Exports

The difference between exports and imports of goods and services

GNP & NDP

GNP is the total output produced with labor or capital "owned" by "U.S. residents"

Net domestic product (NDP) equals the total final output produced within a nation during a year, where output includes net investment

From GDP to Disposable Income

National Income represents the total incomes received by labor, capital, and land. It is constructed by subtracting depreciation from GDP

Saving and Investment

National saving equals national investment by defi nition. The components of investment are private domestic investment and foreign investment (or net exports). The sources of saving are private saving (by households and businesses) and government saving (the government budget surplus)

BEYOND THE NATIONAL ACCOUNTS

There are omitted Nonmarket Activities & Omitted Environmental Damage

PRICE INDEXES AND INFLATION

The most important price indexes are the consumer price index, the GDP price index, and the producer price index.