BRINNER 1 6 ppt The National Income Accounts

BRINNER 1 6. ppt The National Income Accounts and the Government Budget Lecture 6

BRINNER 2 6. ppt National Income and Product Accounting u u Income and Spending on Domestic Goods Should Add to Same Total, which is also Domestic Output All Measure the Value-Added Purchased and Provided Spending=Purchases of buying groups: households, business, government, foreign buyers Income=Earnings of all types: wages, rent, interest, dividends, retained earnings, depreciation allowances

Spending=Purchases of buying groups: households, business, government, foreign u u u BRINNER 3 6. ppt Don’t Double Count -- Only Final Purchases by Final User Are Added Up Deduct Purchases from Foreign Suppliers and Add Purchases by Foreign Buyers GNP/GDP = All Final Purchases by Domestic Buyers Imports + Exports GNP=Output Produced by Factors Owned by US GDP=Output Produced in Our Borders

BRINNER 4 6. ppt Income = Earnings of all types: wages, rent, interest, dividends, retained earnings, depreciation allowances u u Gross Product vs. Net Product/ Income: – the difference is just depreciation, the using up of output (capital) created in earlier periods – a. k. a. “capital consumption allowance” NNP vs National Income – the difference is a set of sales-like (“excise”) taxes collected before any private sector unit calculates its income

BRINNER 5 6. ppt Income = Earnings of all types: wages, rent, interest, dividends, retained earnings, depreciation allowances u u National Income: the economic pie sliced up among the private sector participants Households earn wages, benefits, interest, rent, and “entrepreneurial income” (laymen call them profits, but these are not earned by a formal corporation) Corporations earn the residual: “profits”, and then pay part out as dividends to households Both pay some taxes, get some transfers (negative taxes)

The Relationships among the Basic Spending and Income Categories BRINNER 6 6. ppt

The Relationships among the Basic Spending and Income Categories BRINNER 7 6. ppt

The Profit Share of GDP cycles around 6%, rising when the economy strengthens (as indicated by a falling unemployment rate) BRINNER 8 6. ppt Profit Share of GDP Profits as % of GDP Unemployment Rate (Inverted scale) Unemployment Rate Note: “Profit Margin” defined as Profits/GDP; Falling unemployment rate is viewed as a strengthening economy

The Relationships among the Basic Spending and Income Categories BRINNER 9 6. ppt

BRINNER 10 6. ppt The Federal Budget

BRINNER 11 6. ppt State & Local Budgets