Decision Makers and Markets

Transcription

1 Decision Makers and Markets Households S FINANCIAL Wages Rent Interest Profit T Budget C I Factors M. (Capital Labor) Government G Goods & Services Rest of world Firms

2 Decision Makers and Markets Households S FINANCIAL Wages Rent Interest Profit T Budget C I Factors M. (Capital Labor) Government G Goods & Services Rest of world Im Firms

3 Decision Makers and Markets Households S FINANCIAL Wages Rent Interest Profit T Budget C I Ex Factors M. (Capital Labor) Government G Goods & Services Rest of world Im Firms

4 Decision Makers and Markets Households S FINANCIAL Wages Rent Interest Profit T Budget C I Ex Factors M. (Capital Labor) Government G Goods & Services Rest of world Im Firms

5 Decision Makers and Markets Wages Rent Interest Profit Households T Budget S FINANCIAL C I Ex BOP Factors M. (Capital Labor) Government G Goods & Services Rest of world Im Firms

6 Decision Makers and Markets (Full) Wages Rent Interest Profit Households T Budget S FINANCIAL C I Ex BOP Factors M. (Capital Labor) Government G Goods & Services Rest of world Im Firms

7 Twin s Budget = G T Households FINANCIAL T Budget Government G Goods & Services Firms

8 Twin s Budget = G T BOP = Im Ex +/- foreign wages, profits, FINANCIAL Ex BOP Factors M. (Capital Labor) Goods & Services Rest of world Im

9 Twin s Budget = G T Households BOP = Im Ex +/- foreign wages, profits, S FINANCIAL BOP Budget I Government Goods & Services Rest of world TWIN DEFICITS: (G T) = S I + (Im Ex) Budget deficit BOP def. S = I + (G T) + (Ex Im) S = I + G T + NX

10 Expenditure Approach (Y = GDP) Wages Rent Interest Profit Households T Budget S FINANCIAL C I Ex BOP Factors M. (Capital Labor) Government G Goods & Services Rest of world Im Firms

11 Expenditure Approach 2006 GDP Y 100% Consumption C 70% Investment I 17% Government Purchases G 19% Net Exports Ex-Im - 6%

12 Expenditure Approach 2006 II.2016 GDP Y 100% 100% Consumption C 70% 69% Investment I 17% 16% Government Purchases G 19% 18% Net Exports Ex-Im - 6% - 3%

13 Expenditure Approach II.2016 GDP Y 100% Consumption C 69% Investment I 16% Government Purchases G 18% Net Exports Ex-Im - 3% Consumption (in $1,000,000,000) 12,695 Durable goods 1,390 Nondurable goods (Grocery, Food, Gas, ) 2,695 Services Housing 2,313 Health 2,166 Other (Restaurants, Transport, Non-profits ) 4,129

14 Expenditure Approach II.2016 GDP Y 100% Consumption C 69% Investment I 16% Government Purchases G 18% Net Exports Ex-Im - 3% Gross private domestic investment 2,974 Nonresidential- Structures 479 Equipment and software 1,815 Residential 698 Change in private inventories -18

15 Expenditure Approach II.2016 GDP Y 100% Consumption C 69% Investment I 16% Government Purchases G 18% Net Exports Ex-Im - 3% Government Purchases 3,263 Federal-Defence % -Other % State and Local 2,024 +9% Note: While $3 trillion is about 20% of GDP, government expenditures (=puchases+transfers) are about 37% of GDP.

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18 Expenditure Approach II.2016 GDP Y 100% Consumption C 69% Investment I 16% Government Purchases G 18% Net Exports Ex-Im - 3% Net Exports Exports 2, % Imports 2,702 +1%

19 Expenditure Approach II.2016 GDP (in $1,000,000,000) Y 18, % Consumption C 12,695 69% Investment I 2,974 16% Government Purchases G 3,263 18% Net Exports Ex-Im %

20 Income Approach (Y = Income) Wages Rent Interest Profit Households T Budget S FINANCIAL C I Ex BOP Factors M. (Capital Labor) Government G Goods & Services Rest of world Im Firms

21 GDP is the sum of the incomes in the economy during a given period. Compensation of Employees 10,005 Net Payment Interest for labor services. 485 Net wages and salaries plus fringe benefits paid by Rental The Income interest households of Persons receive on loans 702they make employers such health care insurance, social Corporate Rental minus the interest households pay on their own security income Profits of contributions, persons is the and payment pension 2,009for fund the use borrowing. Proprietors A of combination land contributions. and Income other of interest rented inputs. on capital and 1,411 profit for entrepreneurship. Proprietors are people who run their own Net Paid businesses. national out as dividends A product mixture and of the at undistributed factor previous cost four profits items. 14,612 are all counted as income. [ Government expenditures are about 45-50% of this. ] The expenditure approach values goods and services at market prices, the income approach values them at factor cost. + Indirect taxes (They make market prices exceed factor cost.) Subsidies (They make factor cost exceed market prices.) National Income 15,957

22 National income includes NET profit. Gross profit is a firm s profit before subtracting the depreciation of capital. Net profit is a firm s profit after subtracting the depreciation of capital. Depreciation = The decrease in the value of capital that results from its use and from obsolescence also called capital consumption. Because GDP includes GROSS investment, we must add depreciation to total income. Because GDP is not national but domestic product, we need to add domestic income of foreigners and deduct foreign income of citizens

23 Expenditure Approach II.2016 GDP Y 18, % Consumption C 12,695 69% Investment I 2,974 16% Government Purchases G 3,263 18% Net Exports Ex-Im % Income Approach GDP Y 18, % Compensation of employees 10,556 57% Net Interest, Rents, Profits 2,252 12% Proprietors Income 1,411 8% Indirect taxes - Subsidies 1,345 7% Depreciation 2,676 15% Net US income of foreigners %

24 Real GDP per capita : Not all Production Not a Consumption Not a Standard of Living Environment Quality (no costs here) Household We do Production not count the (out deteriorating of market) planet s resources as a negative part of GDP. Underground Real GDP Production omits household (out of legal production, market) it underestimates the Government Hidden value of Production from the production government (valued of many at to costs) avoid people, taxes most and of regulations them women. or Pollution is not subtracted from GDP; Cleaning adds to it. illegal. Depreciation Building a failed (consumed solar panels by nature) factory adds o GDP as much as any other production Leisure Because Time (unmeasured underground consumption) economic activity is unreported, it is Other omitted Our Influences working from on time GDP. the is Standard valued as of part Living of GDP, but our leisure Freedom time is of not. thought Freedom of expression Freedom of giving Social mobility (Meritocracy) Equity of after tax monetary income