Measuring National Output and National Income. Asst.. Prof. Dr. Serdar AYAN

Transcription

1 Measuring National Output and National Income Asst.. Prof. Dr. Serdar AYAN

2 The Role of Government Fosters competition Regulates industries Deregulate industries Protects stakeholder s s rights Contributes to economic stability

3 Regulating and Deregulating Industries Fair Fair Competition Government Regulation Ethics Ethics Working Conditions Free Competition Public Public Safety Safety

4 Contributing to Contributing to Stability Stability Expansion Expansion Expansion Expansion Expansion Expansion Expansion Expansion Contraction Contraction Contraction Contraction Contraction Contraction Contraction Contraction Recovery Recovery Recovery Recovery Recovery Recovery Recovery Recovery Recession Recession Recession Recession Recession Recession Recession Recession Monetary Monetary Monetary Monetary Monetary Monetary Monetary Monetary Fiscal Fiscal Fiscal Fiscal Fiscal Fiscal Fiscal Fiscal Interest Interest Interest Interest Interest Interest Interest Interest Rates Rates Rates Rates Rates Rates Rates Rates Revenue and Revenue and Revenue and Revenue and Revenue and Revenue and Revenue and Revenue and Spending Spending Spending Spending Spending Spending Spending Spending

5 Indicators How does a free-market system monitor its economic performance? Indicators : Statistics such as interest rates, unemployment rates, housing data etc.. Measuring a nation s output GDP : TL value of all the final goods and services produced by businesses located within a nation s borders ; excludes receipts from overseas operations of domestic companies GNP : TL value of all the final goods and services produced by domestic businesses ; includes receipts from overseas operations and excludes receipts from foreign-owned businesses within a nation s borders

6 Gross Domestic Production General Domestic Product Great Domestic Product Gross Domestic Price Compute Domestic Growth General Domestic Production Multiplayer Stranger Increasing and decreasing Decreasing and decreasing

7 Measuring National Output Dollar Value Final Goods and Services Domestic es Foreign-Owned es Overseas Operations Gross Domestic Product (GDP) Yes Yes Yes No Gross National Product (GNP) Yes Yes No Yes

8 Defining GDP: Three Approaches 1) Final good 2) Value added 3) Income 8

9 GDP: The final goods approach Firm 1: Steel Company Revenues from sales 100TL Expenses (wages) 80TL Profit 20TL What is GDP? 310TL or 210TL Firm 2: Car Company Revenues from sales 210TL Expenses 170TL Wages 70TL Steel purchases 100TL Profit 40TL 9

10 Answer: 210TL Aggregate Output Defining GDP If both firms are summed (100TL + 210TL) the 100TL in steel is counted twice Counting only the final good (cars) includes the intermediate good (steel) 10

11 Defining GDP: Three Approaches 2) Value Added Approach Value added = value of production - value of intermediate goods 11

12 Two Firm Example Steel No intermediate goods Value added = 100TL 12

13 Two Firm Example Cars Intermediate goods (steel) = 100TL Value added = 210TL 100TL = 110TL 13

14 Two Firm Example Value added steel GDP (210) = (100) + value added cars (110) 14

15 Defining GDP Final Sum goods approach of Sum of the value of production chain final the value added along the Value added approach goods 15

16 Defining GDP Approach 1 & 2 define GDP from the production side 16

17 Defining GDP 3) GDP from the income side 17

18 Consider Revenues after payment for intermediate goods Some pay indirect taxes (sales taxes) Some pay workers (labor income) Remainder to the firm (capital income) 18

19 Defining GDP GDP from the income side GDP (income) = indirect taxes + labor income + capital income 19

20 GDP: Income Approach Firm 1: Steel Company Revenues from sales 100TL Expenses (wages) 80TL Profit 20TL Firm 2: Car Company Revenues from sales 210TL Expenses 170TL Wages 70TL Steel purchases 100TL Profit 40TL 20

21 Income (steel) Labor = 80TL Capital = 20TL 100TL Income (car) Labor = 70TL Capital = 40TL 110TL GDP (income) = = 210 Compared to: GDP(valueadded- -210) = valueaddedsteel(100) + valueaddedcar (110) 21

22 Defining GDP A Summary Output Approach = Income Approach Final goods & value added = sum of indirect taxes + labor income + capital income 22

23 Nominal & Real GDP Recall GDP = the value of final goods and services produced Value is the price of the final good 23

24 Therefore, Aggregate Output Nominal & Real GDP GDP = Price x Quantity of final goods produced 24

25 Nominal & Real GDP (correcting for inflation) One good economy Year Quantity of Cars Price of Cars Nominal GDP ,000TL 100,000TL ,000TL 144,000TL ,000TL 169,000TL 25

26 Nominal & Real GDP (correcting for inflation) One good economy Year Quantity of Cars Price of Cars Nominal GDP(% increase) ,000TL 100,000TL (--) ,000TL 144,000TL (44%) ,000TL 169,000TL (17.4%) 26

27 Nominal GDP = P cars x Q cars Question Did the real output of cars increase 44% from 1991 to 1992? 27

28 Calculating Real GDP Real GDP = value of final goods in constant prices 28

29 Real GDP in Units Production of cars , ,000 (20% increase) ,000 (8.33% increase) 29

30 Real GDP in 1992 $s Car Production x 1992 Prices x 12,000TL = 120,000TL x 12,000TL = 144,000TL (20% increase) x 12,000TL = 156,000TL (8% increase) Note: Nominal 1992 GDP = Real 1992 GDP 30