National Income Accounting

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National Income Accounting

• ECN 111 Macroeconomic Principles
• Lecture 11 Spring 2000
• Instructor Igor Lukashin

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Fundamental Questions

• How is the total output of an economy measured?
• Who produces the nations goods services?
• Who purchases the goods and services produced?
• Who receives the income from the production of
  goods and services?
• What is the difference between nominal and real
  GDP?
• What is a price index?

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National Income Accounting

• The framework that summarizes and categorizes
  productive activity in an economy over a specific
  period of time, typically a year
• Measures output of an entire economy as well as
  flows between sectors
• Estimates, rather than measures precisely, but
  provides a fairly accurate picture

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Gross Domestic Product

• The most common measure of a nations output.
• Gross Domestic Product (GDP)
• the market value
• value at the market price barter not included
• of all final goods and services
• intermediate goods are excluded
• alternatively, it is possible to calculate the
  market value using the value added technique
  (difference between price of the good and cost of
  resources used to produce the good)
• produced in a year
• but not necessarilysold changes in inventory
• within a country

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Alternative GDP Representations

• GDP as Output
• who produces the nations goods and services?
• GDP is the value of final goods and services
  produced by domestic households, businesses and
  government
• GDP as Expenditures
• Who purchases the goods and services produced?
• GDP C I G X
• Consumption, Investment, Government Spending
  Net Exports
• GDP as Income
• Who receives the income from production of goods
  services?
• GDP wages interest rent profit - net
  factor income from abroad capital consumption
  allowance indirect business taxes

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GDP as Income Explained

• Wages, Interest, Rent, Profits
• payments accruing to labor, capital, land and
  entrepreneurial ability
• Capital Consumption Allowance
• the estimated value of depreciation plus the
  value of accidental damage to capital stock
• Indirect Business Taxes
• a tax that is collected by businesses for a
  government agency
• Net factor income from abroad
• income received from U.S.-owned resources located
  abroad minus income paid to foreign-owned
  resources located in the U.S.

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Other Measures of Output Income

• Gross National Product (GNP)
• GDP plus receipts of factor income from the rest
  of the world minus payments of factor income to
  the rest of the world
• Net National Product (NNP)
• GNP minus capital consumption allowance
• includes net instead of gross investment, i.e.
  Investment above and beyond replenishment of
  worn-out capital stock
• National Income (NI)
• NNP minus indirect business taxes
• shows the income payments that actually go to
  resources
• Personal Income
• national income plus income currently received
  but not earned, minus income currently earned but
  not received
• transfer payments - social security taxes

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Other Measures, continued

• Disposable Personal Income (DPI)
• Personal Income minus Personal Taxes
• Income individuals have at their disposal for
  spending or saving
• DPI Consumption Saving

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Nominal and Real Measures

• Nominal GDP
• a measure of national output based on the current
  prices of goods services
• Real GDP
• a measure of the quantity of final goods and
  services produced, obtained by eliminating the
  einfluence eof price changes from the nominal GDP
  statistic
• Difference between Nominal Real
• Nominal GDP of different years is not meaningful
  to compare due to different prices of goods
  services
• Real GDP are calculated at prices of some base
  year, so more goods services produced is the
  only possible reason for GDP growth.

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Price Indexes

• Dollar Value of Output price X quantity
• Quantity Dollar Value Of Output / price
• Price Index
• a measure of the average price level in an
  economy
• the value of the price index in any particular
  year indicates how prices have changed relative
  to the base year
• Base Year
• the year against which other years are measured
• Constant-Dollar Real GDP
• suffers from substitution bias
• Chain-Type Real GDP growth
• the geometric mean of the growth rates found
  using beginning and ending year prices

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Types of Price Indexes

• GDP price index
• a broad measure of the prices of goods and
  services included in the gross domestic product
• Consumer Price Index (CPI)
• a measure of the average price of goods and
  services purchased by the typical household
• Cost of Living Adjustment (COLA)
• an increase in wages that is designed to match
  increases in prices of items purchased by the
  typical household
• Producer price Index
• a measure of average prices received by producers

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Other Measures, continued