Measuring the Economys Performance How do you measure

Measuring the Economy’s Performance

�How do you measure an individual’s financial success? �How do you measure a nation’s financial success?

� 5 factors 1. Gross Domestic Product (output) 2. Net Domestic Product (output) 3. National Income (income) 4. Personal Income (income) 5. Disposable Personal Income (income) Measuring the Nation’s Economy

�Total dollar value of all final goods and services produced in a nation in a single year. ◦ Cumulative value of all items produced �Always expressed in dollar terms. �Only the final good or service is counted �Only new goods are counted ◦ A computer is counted not the hard drive ◦ Used vehicles don’t count Gross Domestic Product (GDP)

�Expenditures are divided into four categories ◦ Consumer Sector �Goods or services bought by a consumer for their direct use ◦ Investment Sector �Business purchase of tools, machines, and equipment ◦ Government Sector �Goods and services bought by state, local, and federal government ◦ Net Exports �The difference between what the nation buys from other countries and what it sells to other countries. �Exports – Imports = Net Exports Computing GDP

�Value of the nations total output (GDP) minus the total value lost through depreciation on equipment. �Depreciation- loss of value because of wear and tear Net Domestic Product (NDP)

�Total amount of income earned by everyone in the economy �Sum of all income from all areas of the economy �Includes ◦ Wages and salaries ◦ Self-employed income ◦ Rental income ◦ Corporate profits ◦ Interest on savings National Income

�Personal Income ◦ Total income that individuals receive before personal taxes are paid �Disposable Personal Income ◦ Income remaining for people to spend or save after all taxes have been paid. Personal Income & Disposable Personal Income