NATIONAL INCOME ACCOUNTING

Transcription

1 NATIONAL INCOME ACCOUNTING How do we measure the nation s income; the value of its output of goods and services? Gross Domestic Product (GDP) the total market value of all final goods and services produced in the economy in one year. Points to note: 1) To measure, we need a measuring stick. How do we measure value? For GDP, we use dollars current market prices measured in current dollars. 2) in one year what does that phrase tell about the type of variable GDP is? But GDP comes out quarterly. How can it be production in one year if the numbers come out each quarter? 3) Final goods and services Is that the same as finished?

2 No! Final goods are those that are NOT intermediate. So what is intermediate? Rule: Anything purchased for resale, either directly or indirectly, with or without further processing in the physical sense, are classified intermediate and as such are excluded from GDP. But, how do the national income accountants know what is bought for resale? Their rule: Anything charged to current cost is defined as

3 intermediate. (Meaning: anything that is NOT expensed.) Consider the case of a $400 wool suit: Final vs. Intermediate Sales Stage of Production Sale Price Value Added Firm A. Sheep Ranch $100 $100 Firm B. Wool Processing Firm $ Firm C. Suit Manufacturer $ Firm D. Clothing Wholesaler $ Firm E. Clothing Retail Store $ $1,130 $400 Note that if we simply add in every expenditure, then the value of the suit would appear to be $1,130. Yet we know that that is not the case. The value of the suit is the $400 that the customer pays at the store the current market price. Adding in all the other transactions would amount to double and triple counting the same item. So, what does go into GDP? Spending and Income. Look at spending first: Who spends?

4 Households Businesses Governments Foreigners Households Personal Consumption Expenditures pizzas, beer, shirts, caps, CDs, new tires, pencils, computers, cars, refrigerators, microwave ovens, stereos.. haircuts, unclogged drains, movie tickets, music concert tickets, appendectomies, shelter*,.. ie., consumer nondurables durables services

5 Businesses Gross Private Domestic Investment What s gross Hint: it ain t net What s private? And domestic? And finally, what s investment? Investment is Business Sector Spending for: v Plant and equipment (Business fixed investment) v Construction (Both Residential and non

6 v Changes in inventories Investment is NOT: stocks and bonds shares of stock stamp collections Government Govt Purchases of Goods/Services Which governments? U.S. federal government state governments city governments county governments

7 Purchases??? Not government giveaways Not welfare payments Not social security benefits Not food stamps Foreigners (Rest of world) What they spend on our output minus what we spend on their output Total Exports minus Total Imports X M = X n Thus, to obtain GDP C

8 + I + G + X n = GDP And what does GDP NOT include? Intermediate transactions* Most nonmarket transactions* Illegal transactions Purely financial transactions capital gains, losses purchases of securities

9 secondhand sales transfers, subsidies