National Output GDP GDP Gross DOMESTIC Product The

National Output

GDP • GDP = Gross DOMESTIC Product – The dollar amount of all FINAL goods and services produced within a country’s boarders in a year – THE MOST IMPORTANT MEASURE OF THE ECONOMY’S OVERALL ECONOMIC PERFORMANCE – GDP good = economy good – GDP bad = economy bad

National Income Accounting • The system of statistics and accounts that keeps track of production, consumption, saving, and investment – Tracks overall economic performance • The data then is transferred to the U. S. Department of commerce through the National Income and Product Accounts (NIPA)

GDP, What Counts • Everything that is produced within the boarders of a country – Must be a final product • Even if the owner of the company is a foreign country – i. e. – Japanese cars made in factories within U. S. • But… – U. S. owned companies with factories in Mexico, Canada, or any other country does not

GDP, What Doesn’t Count? • Intermediate products – products used to make other products that are already counted in GDP – Tires for production cars – don’t count – Tires for sale at your local tire dealer – count • Second-Hand Sales – used goods – Used cars – Anything that is being sold for a second time • Nonmarket Transactions – transactions that take place out of the market – Doing work for yourself • Underground economy – unreported legal and illegal operations – Work that is done “under the table”

Products Quantity (Millions) Price (per 1 unit) Dollar Value (millions) Goods Automobiles Replacement Tires Shoes …* 6 10 55 …* $20, 000 $60 $50 …* $120, 000 $600 $2, 750 …* Services Haircuts Income Tax Filings Legal Advice …* 150 30 45 …* $8 $150 $200 …* $1, 200 $4, 500 $9, 000 …* Structures Single Family Multifamily Commercial …* 3 5 1 …* $75, 000 $300, 000 $1, 000 …* $225, 000 $1, 500, 000 $1, 000 …* Total Gross Domestic Product = $9 Trillion

Limitations • While measuring GDP, we are limited in knowing what the increase or decrease in output is resulting from – For example: GDP is reported as being up 10% • This seems good initially, but… • What if you learned that the increase was from the military producing bombs, nerve gas, or other forms of harmful products • Also, it tells us little about how the increase or decrease effects the quality of life

GNP • GNP – Gross National Product – Dollar value of all final goods, services, and structures produced in one year with labor and property supplied by a country’s residents • GNP is based on GDP, but with some small differences – GDP = Everything made and serviced here – GNP = Measures income of all Americans, inside or outside of our boarders • To go from GDP to GNP; must add all payments that Americans receive from outside the boarders, then subtract all payments made to foreign-owned resources in the U. S. GNP = GDP + American’s Income – Payments to foreign business

NNP • NNP = Net National Product – Includes the NIPA NNP = GNP-depreciation – Depreciation – the capital equipment that has worn out or become obsolete over the year

National Income (NI) • NI – the income that is left over after all taxes except the corporate profits tax are subtracted from NNP NI = NNP – Indirect business taxes and subsidies

Personal Income (PI) • PI – total amount of income going to consumers before individual income taxes are subtracted PI = NI + transfer payments to persons, personal interest income, and Social security receipts – undistributed corporate profits, corporate income taxes, and social security contributions

Disposable Income (DI) • DI – the total income the consumer sector has at its disposal after personal income taxes DI = PI – personal taxes and nontax payments

Economic Sectors • Consumer Sector (C) – largest sector in the macro economic structure • Household – all persons who occupy a house, apartment, or room that constitute separate living quarters • Includes – related family members, and all others – such as lodgers, foster children, and employees – who share living quarters

Economic Sectors – cont. • Investment Sector (I) – consists of businesses and investors • Includes – proprietorships, partnerships, and corporations • Responsible for bringing together the factors of production

Economic Sectors – cont. • Government Sector (G) – also known as the public sector • Includes all local, state, and federal levels of government

Output Expenditure Model • Used to show the aggregate demand by the consumer, investment, government, and foreign sectors. GDP = C+I+G+(X-M)