Macroeconomics. GDP. Income. Economic Growth

and services produced within a country's borders in a specific time period

Includes all domestic production in a boarders
Monetary measurement of value
To avoid multiple counting – must include ONLY new production (sold to consumers)
Does NOT include:
intermediate goods (ex: tires for new auto)
public transfer payments (welfare payment)
private transfer payments (cash gifts)
stock market transactions (stocks & bonds)
secondhand sales (used books, cars, homes)

new goods & services that are purchased by: consumers, businesses, government, & net exports (X – M = Xn)
GDPExpenditure =C + I + G + NX

Consumption

Investment

Government purchases of goods and services

Net eXports

$10,000
beans sold to coffee bar $25,000
Coffee bar
Wages $10,000
Taxes $2,000
Beans bought from roaster $25,000
Revenue from coffee sold to public $40,000

Note: Beans sold to coffee bar are intermediate goods since they are used in the production of coffee sold to the public (final good).
Total expenditure = Consumption Expenditures = Beans purchased by public + Coffee purchased by public = $10,000 + $40,000 = $50,000 final goods.

$20,000
sold to wine-maker $30,000
Wine-maker
Wages $18,000
Taxes $8,000
Grapes from winegrower $30,000
Revenue from wine sold to public $40,000
Total expenditure = Consumption Expenditures = Grapes purchased by public + Wine purchased by public = 20 000 + 40 000 = 60 000 final goods.

all the sectors of the economy.
Value added is sales minus materials, intermediate inputs and energy costs.
The value of a final good is equal to the value added at each stage of production.
Expenditure method = Production Method

$10,000
beans sold to coffee bar $25,000
Coffee bar
Wages $10,000
Taxes $2,000
Beans bought from roaster $25,000
Revenue from coffee sold to public $40,000

Value Added – revenue earned by selling products minus the amount paid for intermediate goods
Intermediate goods - goods that are used for the production of other goods (in the current year)
Roaster value added = $35,000 in revenue - $0 spent on intermediate goods = $35,000
Coffeebar value added = $40,000 in revenue - $25,000 spent on intermediate goods (beans) = $15,000
Total value added = $50,000

$20,000
sold to wine-maker $30,000
Wine-maker
Wages $18,000
Taxes $8,000
Grapes from winegrower $30,000
Revenue from wine sold to public $40,000

Winegrower value added = 50 000 in revenue – 0 spent on intermediate goods = 50 000
Wine-maker value added = 40 000 in revenue – 30 000 spent on intermediate goods (beans) = 10 000
Total value added = 50 000 + 10 000 = 60 000

produce the goods & services
Workers, owners of property, interest earned on savings, profit earned by business owners (proprietors, partners & corporation stockholders)
Requires some accounting adjustments =＞ Expenditures = Income (must balance)
National income =＞ all citizens supplied resources (here & abroad)

National Income + statistical discrepancy = Net National Product

- S) + (G - T) + (X - M) = 0

approach

W - employee compensation (wages)
P - profits received by proprietors & corporation owners (income taxes, dividends, & undistributed profits (retained earnings)
R - rent received for use of property
I - Interest received for use of money

Compensation of Fixed Capital = Depreciation (costs of capital over its lifetime)

Sales, excise, property, customs duties, license fees, etc

income of non-residents in domestic territory

$10,000
beans sold to coffee bar $25,000
Coffee bar
Wages $10,000
Taxes $2,000
Beans bought from roaster $25,000
Revenue from coffee sold to public $40,000

Note: profit = revenue - expenses
Total wages: $15,000 + $10,000 = $25,000 Total taxes: $5,000 + $2,000 = $7,000
Roaster profit = Revenue - Expenses = $35,000 - ($15,000 in wages + $5,000 in taxes) = $15,000. Coffeebar profit = Revenue - Expenses = $40,000 - ($10,000 in wages + $2,000 in taxes + $25,000 in beans) = $3,000 Total profit = $15,000 + $3,000 = $18,000.
Total income = Total Wages + Total Taxes + Total Profits = $25,000 + $7,000 +$18,000 = $50,000

$20,000
sold to wine-maker $30,000
Wine-maker
Wages $18,000
Taxes $8,000
Grapes from winegrower $30,000
Revenue from wine sold to public $40,000

Total wages = 20 000+18 000 = 38 000
Total taxes = 7 000+8 000 = 15 000
Profit (winegrower) = 50 000 - (20 000+7 000) = 23 000
Profit (wine-maker) = 40 000 - (18 000+8 000+30 000) = -16 000
Total revenue = 23 000 – 16 000 = 7 000
Total income = 38 000+150 00+7 000 = 60 000

GDP. The right-hand side of the account shows the final expenditures by consumers, private business, governments and foreigners. The left-hand side of the account shows the incomes that are generated in the production of that output.

show the approach used by BEA for deriving GDP: It is measured using the expenditures approach – that is, as the sum of purchases by final users.
The left (income) side – the sum of all the incomes earned and costs incurred in production.
Specifically, the left side shows GDI as the sum of the income earned by labor, governments and entrepreneurs and the consumption of fixed capital.
In theory, GDI should be equal to GDP. In practice, differences in the source data used to estimate the two measures result in a “statistical discrepancy,” which, in the NIPAs ( national income and product accounts), is calculated as GDP less GDI.
Because the source data used to develop the product-side estimates of the account are based on more comprehensive surveys and censuses, BEA considers them more reliable. Therefore, the statistical discrepancy appears as a component on the income side of the account to equate GDI with GDP.

adjusted for inflation
Nominal ＞ Real (in the most cases)
Nominal GDP is used when comparing different quarters of output within the same year. When comparing the GDP of two or more years, real GDP is used because, by removing the effects of inflation, the comparison of the different years focuses solely on volume.

GDP =Pcheese2010∗Qcheese+Pwine2010∗Qwine
Real GDP2010 = 5*2+10*4=50
Real GDP2011=5*3+10*3=45
Real GDP2012=5*4+10*3=50

Real GDP grow = (Real GDP 2011-Real GDP 2010)/Real GDP2010
Real GDP grow2011-2010 = (45-50)/50= -0.1
Real GDP grow2011-2012 = (50-45)/50= 0.1

Nominal GDP grow2011-2010 = (87-50)/50= 0.74
Nominal GDP grow2011-2012 = (108-87)/87= 0.24

Based year

of activity in the earlier period;
m is the periodicity of the data (for example, 1 for annual data, 4 for quarterly data, or 12 for monthly data); and
n is the number of periods between the earlier period and the later period(that is t-0).

to some base year.
It is the cost of purchasing the goods that represent GDP relative to the cost of purchasing the exact same goods if they had been sold at the prices prevailing in the base year

Consumer Price Index

The CPI is a measure that examines the weighted average of prices of a basket of consumer goods and services
Price index in the base year is always 100

(raw data)

Corrects the value of Nominal GDP for inflation

deflator and CPI are measures of inflation.
GDP deflator measures price level but will focus more on all new, domestically produced, final goods and services in an economy
CPI is the measure of changes in the price level of consumer goods purchased by households over time.
CPI uses a fixed basket to compare prices in determining inflation progress. GDP deflator uses the price of the currently produced product relative to the price from the base year.

× 1+10 × 2=25
The value of the market basket in the year 2012 :
12 × 1+20 × 2=52
CPI2012= (52/25) × 100= 208  

Deflator GDP2010 = (Nominal GDP2010/Real GDP2010 ) × 100=(50/50) ×100=100
Deflator GDP2012=(108/50) ×100=216
Inflation=[(Def GDP2012-Def GDP2010)/Def GDP 2010] ×100=[(216-100)/100] ×100=216

​To convert a nominal value to a real value:
So a Television that cost $100 in 2012 would cost $48 ([100/208] × 100=48) (CPI) or $46.3 ([100/216] × 100=46.3) (Deflator GDP) in 2010
Real GDP 2012 in 2010 dollars =50×(100/216)=23.14