Chapter 17: Measuring National Output and National Income

Transcript Chapter 17: Measuring National Output and National Income

Pengukuran National Output dan National Income

National Income dan Product Accounts

•

National income and product accounts

are data collected and published by the government describing the various components of national income and output in the economy.

• The Department of Commerce is responsible for producing and maintaining the “National Income and Product Accounts” that keep track of GDP.

Produk Domestik Bruto

•

Gross domestic product (GDP)

is the total market value of all final goods and services produced within a given period by factors of production located within a country.

Barangan dan Jasa Akhir

• The term

final goods and services

refers to goods and services produced for final use.

•

Intermediate goods

are goods produced by one firm for use in further processing by another firm.

Pertambahan Nilai

•

Value added

is the difference between the value of goods as they leave a stage of production and the cost of the goods as they entered that stage.

• In calculating GDP, we can either sum up the value added at each stage of production, or we can take the value of final sales. We do not use the value of total sales in an economy to measure how much output has been produced.

Pertambahan Nilai

Value Added in the Production of a Gallon of Gasoline (Hypothetical Numbers) STAGE OF PRODUCTION

(1) Oil drilling (2) Refining

VALUE OF SALES

$ .50

.65

(3) Shipping (4) Retail sale Total value added .80

1.00

VALUE ADDED

$ .50

.15

.20

$1.00

Exclusions from GDP

• GDP ignores all transactions in which money or goods change hands but in which no new goods and services are produced.

PDB Versus PNB

• GDP is the value of output produced by factors of production

located within a country

. Output produced by a country’s citizens, regardless of where the output is produced, is measured by

gross national product (GNP).

Perhitungan PDB

• • GDP can be computed in two ways:

The expenditure approach

: A method of computing GDP that measures the amount spent on all final goods during a given period.

The income approach

: A method of computing GDP that measures the income —wages, rents, interest, and profits —received by all factors of production in producing final goods.

Pendekatan Pengeluaran

• Expenditure categories:

Personal consumption expenditures (C)

—household spending on consumer goods.

•

Gross private domestic investment (I)

—spending by firms and households on new capital: plant, equipment, inventory, and new residential structures.

Pendekatan Pengeluaran

Expenditure categories: •

Government consumption and gross investment (G)

•

Net exports (EX – IM)

—net spending by the rest of the world, or exports (

) minus imports (

Pendekatan Pengeluaran

• The expenditure approach calculates GDP by adding together these four components of spending. In equation form:

GDP I G

(



Personal Consumption Expenditures

• Personal consumption expenditures (C) are expenditures by consumers on the following: •

Durable goods

: Goods that last a relatively long time, such as cars and household appliances.

•

Nondurable goods

: Goods that are used up fairly quickly, such as food and clothing.

•

Services

: The things that we buy that do not involve the production of physical things, such as legal and medical services and education.

Components of GDP, 1999: The Expenditure Approach

Components of GDP, 1999: The Expenditure Approach BILLIONS OF DOLLARS

Total gross domestic product Personal consumption expenditures (C)

Durable goods Nondurable goods Services

Gross private domestic investment (l)

Nonresidential Residential Change in business inventories

Government consumption and gross investment (G)

Federal State and local

Net exports (EX – IM)

Exports (

) Imports (

)

Note: Numbers may not add exactly because of rounding.

Source:

U.S. Department of Commerce, Bureau of Economic Analysis.

9,299.2

6,268.7

761.3

1,845.5

3,661.9

1,650.1

1,203.1

403.8

43.3

1,634.4

568.6

1,065.8

 254.0

990.2

1,244.2

PERCENTAGE OF GDP

100.0

67.4

8.2

19.8

39.4

17.7

12.9

4.3

0.5

17.6

6.1

 11.5

2.7

10.6

13.4

Gross Private Domestic Investment

•

Investment

refers to the purchase of new capital.

• Total investment by the private sector is called

gross private domestic investment

. It includes the purchase of new housing, plants, equipment, and inventory by the private (or non-government) sector.

Gross Private Domestic Investment

•

Nonresidential investment

includes expenditures by firms for machines, tools, plants, and so on.

•

Residential investment

includes expenditures by households and firms on new houses and apartment buildings.

•

Change in inventories

computes the amount by which firms’ inventories change during a given period. Inventories are the goods that firms produce now but intend to sell later.

Gross Investment versus Net Investment

• •

Gross investment

is the total value of all newly produced capital goods (plant, equipment, housing, and inventory) produced in a given period.

•

Depreciation

an asset’s value falls in a given period.

is the amount by which

Net investment

equals gross investment minus depreciation.

Government Consumption and Gross Investment

•

Government consumption and gross investment (G

) counts expenditures by federal, state, and local governments for final goods and services.

Net Exports

•

Net exports (EX – IM)

is the difference between exports (sales to foreigners of U.S.-produced goods and services) and imports (U.S. purchases of goods and services from abroad). The figure can be positive or negative.

Pendekatan Penerimaan

•

National income

is the total income earned by the factors of production owned by a country’s citizens.

• The

income approach

down

GDP

breaks into four components:

GDP

national income

depreciation

+ (

indirect taxes subsidies

) +

net factor payments to the rest of the world

–

+ other

Pendekatan Penerimaan

Components of GDP, 1999: The Income Approach

Gross domestic product National income Compensation of employees Proprietors’ income Corporate profits Net interest Rental income Depreciation Indirect taxes minus subsidies Net factor payments to the rest of the world Other

Source:

See Table 17.2.

BILLIONS OF DOLLARS

9,299.2

7,469.7

5,299.8

663.5

856.0

507.1

143.4

1,161.0

 689.7

11.0

32.2

PERCENTAGE OF GDP

100.0

80.3

57.0

7.1

9.2

5.5

1.5

12.5

7.4

0.1

 0.3

From GDP to Disposable Income

GDP, GNP, NNP, National Income, Personal Income, and Disposable Personal Income, 1999 GDP

Plus: receipts of factor income from the rest of the world Less: payments of factor income to the rest of the world Equals:

GNP

Less: depreciation Equals:

net national product (NNP)

Less: indirect taxes minus subsidies plus other Equals:

national income

Less: corporate profits minus dividends Less: social insurance payments Plus: personal interest income received from the government and consumers Plus: transfer payments to persons Equals:

personal income

Less: personal taxes Equals:

disposable personal income

Source:

See Table 17.2.

DOLLARS (BILLIONS)

9,299.2

+ 305.9

 316.9

 9,288.2

1,161.0

8,127.1

 675.5

7,469.7

 485.7

 662.1

+ 456.6

 +1,011.0

7,789.6

1,152.0

6,637.7

From GDP to Disposable Income

•

Net national product

capital stock.

equals gross national product minus depreciation; a nation’s total product minus what is required to maintain the value of its © 2002 Prentice Hall Business Publishing Principles of Economics, 6/e Karl Case, Ray Fair

From GDP to Disposable Income

•

Personal income

is the total income of households. Equals (national income) minus (corporate profits minus dividends) minus (social insurance payments) plus (interest income received from the government and households).

• Personal income is the income received by households after paying social insurance taxes but before paying personal income taxes.

Disposable Personal Income and Personal Saving

Disposable Personal Income and Personal Saving, 1999

Disposable personal income Less: Personal consumption expenditures Interest paid by consumers to business Personal transfer payments to foreigners Equals: personal saving Personal savings as a percentage of disposable personal income:

Source:

See Table 17.2.

DOLLARS (BILLIONS)

6,637.7

 6,268.7

  194.8

26.6

147.6

Disposable Personal Income and Personal Saving

• The

personal saving rate

is the percentage of disposable personal income that is saved. If the personal saving rate is low, households are spending a large amount relative to their incomes; if it is high, households are spending cautiously.

Nominal versus Real GDP

• Nominal GDP is GDP measured in

current dollars

, or the current prices we pay for things. Nominal GDP includes all the components of GDP valued at their current prices.

• When a variable is measured in current dollars, it is described in

nominal terms

Calculating Real GDP

• A

weight

is the importance attached to an item within a group of items.

• A

base year

is the year chosen for the weights in a fixed-weight procedure.

• A

fixed-weight procedure

uses weights from a given base year.

Calculating Real GDP

A Three-Good Economy (1) (2)

Good

Total

PRODUCTION YEAR 1

1 YEAR 2

6 11 7 10 4 12

(3) (4) PRICE PER UNIT YEAR 1

1 YEAR 2

$.50

$ .40

.30

.70

1.00

.90

(5) GDP IN YEAR 1 IN YEAR 1 PRICES

1 x Q 1

$3.00

2.10

7.00

$12.10

Nominal GDP in year 1

(6) GDP IN YEAR 2 IN YEAR 1 PRICES

1 x Q 2

$5.50

1.20

8.40

$15.10

(7) GDP IN YEAR 1 IN YEAR 2 PRICES

2 x Q 1

$2.40

7.00

9.00

$18.40

(8) GDP IN YEAR 2 IN YEAR 2 PRICES

2 X Q 2

$4.40

4.00

10.80

$19.20

Calculating the GDP Price Index

• The GDP price index is one measure of the overall price level.

• The old procedure used by the Bureau of Economic Analysis (BEA) to estimate changes in the overall price

level

used the quantities produced in a chosen year (the base year) as weights. But overall price increases are sensitive to the choice of the base year. The new procedure, known as the chained price index, avoids the problems associated with the use of fixed weights.

The Problems of Fixed Weights

The use of fixed price weights to estimate real GDP leads to problems because it ignores: 1. Structural changes in the economy.

2. Supply shifts, which cause large decreases in price and large increases in quantity supplied.

3. The substitution effect of price increases.

Limitations of the GDP Concept

• Society is better off when crime decreases, but a decrease in crime is not reflected in GDP.

• An increase in leisure is an increase in social welfare, not counted in GDP.

• Nonmarket and domestic activities are not counted even though they amount to real production.

Limitations of the GDP Concept

• GDP accounting rules do not adjust for production that pollutes the environment.

• GDP has nothing to say about the distribution of output. Redistributive income policies have no direct impact on GDP.

• GDP is neutral to the kinds of goods an economy produces.

The Underground Economy

• The

underground economy

is the part of an economy in which transactions take place and in which income is generated that is unreported and therefore not counted in GDP.

Per Capita GDP/GNP

•

Per capita GDP

GNP

measures a country’s GDP or GNP divided by its population.

• Per capita GDP is a better measure of well-being for the average person that its total GDP or GNP.

Per Capita GDP/GNP

Per Capita GNP for Selected Countries, 1998 COUNTRY U.S. DOLLARS

Switzerland Norway Denmark Japan United States Austria Germany Sweden Belgium France Netherlands Finland United Kingdom Australia Italy Canada Ireland Israel Spain Greece

Source: The World Bank Atlas, 2000.

COUNTRY

Portugal Argentina South Korea Czech Republic Brazil Mexico Turkey South Africa Colombia Jordan Romania Philippines China Indonesia Pakistan India Rwanda Nepal Ethiopia Principles of Economics, 6/e

U.S. DOLLARS

10,690 8,970 7,970 5,040 4,570 3,970 3,160 2,880 2,600 1,520 1,390 1,050 750 680 480 430 230 210 100 Karl Case, Ray Fair

Chapter 17: Measuring National Output and National Income

Transcript Chapter 17: Measuring National Output and National Income

Pengukuran National Output dan National Income

National Income dan Product Accounts

Produk Domestik Bruto

Barangan dan Jasa Akhir

Pertambahan Nilai

Pertambahan Nilai

Exclusions from GDP

PDB Versus PNB

Perhitungan PDB

Pendekatan Pengeluaran

Pendekatan Pengeluaran

Pendekatan Pengeluaran



Personal Consumption Expenditures

Components of GDP, 1999: The Expenditure Approach

Gross Private Domestic Investment

Gross Private Domestic Investment

Gross Investment versus Net Investment

Government Consumption and Gross Investment

Net Exports

Pendekatan Penerimaan

Pendekatan Penerimaan

From GDP to Disposable Income

From GDP to Disposable Income

From GDP to Disposable Income

Disposable Personal Income and Personal Saving

Disposable Personal Income and Personal Saving

Nominal versus Real GDP

Calculating Real GDP

Calculating Real GDP

Calculating the GDP Price Index

The Problems of Fixed Weights

Limitations of the GDP Concept

Limitations of the GDP Concept

The Underground Economy

Per Capita GDP/GNP

Per Capita GDP/GNP

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