Measuring a nation’s income. What is Gross Domestic Product (GDP)

Сентябрь 7, 2022

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Measuring a nation’s income. What is Gross Domestic Product (GDP)

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2. In this chapter, look for the answers to these questions: What is Gross Domestic Product (GDP)?
3. MEASURING A NATION’S INCOME Micro vs. Macro Microeconomics: The study of how individual households and firms
4. MEASURING A NATION’S INCOME Income and Expenditure Gross Domestic Product (GDP) measures total income of everyone
5. MEASURING A NATION’S INCOME The Circular-Flow Diagram a simple depiction of the macroeconomy illustrates GDP as
6. MEASURING A NATION’S INCOME The Circular-Flow Diagram Households: own the factors of production, sell/rent them to
7. MEASURING A NATION’S INCOME The Circular-Flow Diagram
8. MEASURING A NATION’S INCOME What This Diagram Omits The government collects taxes, buys g&s The financial
9. MEASURING A NATION’S INCOME …the market value of all final goods & services produced within a
10. MEASURING A NATION’S INCOME …the market value of all final goods & services produced within a
11. MEASURING A NATION’S INCOME …the market value of all final goods & services produced within a
12. MEASURING A NATION’S INCOME …the market value of all final goods & services produced within a
13. MEASURING A NATION’S INCOME …the market value of all final goods & services produced within a
14. MEASURING A NATION’S INCOME …the market value of all final goods & services produced within a
15. MEASURING A NATION’S INCOME The Components of GDP Recall: GDP is total spending. Four components: Consumption
16. MEASURING A NATION’S INCOME Consumption (C) is total spending by households on g&s. Note on housing
17. MEASURING A NATION’S INCOME Investment (I) is total spending on goods that will be used in
18. MEASURING A NATION’S INCOME Government Purchases (G) is all spending on the g&s purchased by govt
19. MEASURING A NATION’S INCOME Net Exports (NX) NX = exports – imports Exports represent foreign spending
20. MEASURING A NATION’S INCOME U.S. GDP and Its Components, 2007
21. MEASURING A NATION’S INCOME Real versus Nominal GDP Inflation can distort economic variables like GDP, so
22. MEASURING A NATION’S INCOME EXAMPLE: Compute nominal GDP in each year: 2005: $10 x 400 +
23. MEASURING A NATION’S INCOME EXAMPLE: Compute real GDP in each year, using 2005 as the base
24. MEASURING A NATION’S INCOME EXAMPLE: In each year, nominal GDP is measured using the (then) current
25. MEASURING A NATION’S INCOME EXAMPLE: The change in nominal GDP reflects both prices and quantities. The
26. Nominal and Real GDP in the U.S., 1965-2007 Real GDP (base year 2000) Nominal GDP
27. MEASURING A NATION’S INCOME The GDP Deflator The GDP deflator is a measure of the overall
28. MEASURING A NATION’S INCOME EXAMPLE: Compute the GDP deflator in each year:
29. A C T I V E L E A R N I N G 2 Computing
30. A C T I V E L E A R N I N G 2 Answers
31. A C T I V E L E A R N I N G 2 Answers
32. MEASURING A NATION’S INCOME GDP and Economic Well-Being Real GDP per capita is the main indicator
33. Gross Domestic Product… “… does not allow for the health of our children, the quality of
34. MEASURING A NATION’S INCOME GDP Does Not Value: the quality of the environment leisure time non-market
35. MEASURING A NATION’S INCOME Then Why Do We Care About GDP? Having a large GDP enables
36. GDP and Life Expectancy in 12 countries Life expectancy (years) Real GDP per capita U.S. Germany
37. GDP and Literacy in 12 countries Adult Literacy (% of population) Real GDP per capita U.S.
38. GDP and Internet Usage in 12 countries Internet Usage (% of population) Real GDP per capita
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In this chapter, look for the answers to these questions:
What is

Gross Domestic Product (GDP)?
How is GDP related to a nation’s total income and spending?
What are the components of GDP?
How is GDP corrected for inflation?
Does GDP measure society’s well-being?

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MEASURING A NATION’S INCOME
Micro vs. Macro
Microeconomics: The study of how individual

households and firms make decisions, interact with one another in markets.
Macroeconomics: The study of the economy as a whole.
We begin our study of macroeconomics with the country’s total income and expenditure.

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MEASURING A NATION’S INCOME
Income and Expenditure
Gross Domestic Product (GDP) measures total

income of everyone in the economy.
GDP also measures total expenditure on the economy’s output of g&s.

For the economy as a whole, income equals expenditure because every dollar a buyer spends is a dollar of income for the seller.

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MEASURING A NATION’S INCOME
The Circular-Flow Diagram
a simple depiction of the macroeconomy
illustrates

GDP as spending, revenue, factor payments, and income
Preliminaries:
Factors of production are inputs like labor, land, capital, and natural resources.
Factor payments are payments to the factors of production (e.g., wages, rent).

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MEASURING A NATION’S INCOME
The Circular-Flow Diagram
Households:
own the factors of production, sell/rent

them to firms for income
buy and consume goods & services

Firms:
buy/hire factors of production, use them to produce goods and services
sell goods & services

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MEASURING A NATION’S INCOME
The Circular-Flow Diagram

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MEASURING A NATION’S INCOME
What This Diagram Omits
The government
collects taxes, buys g&s
The

financial system
matches savers’ supply of funds with borrowers’ demand for loans
The foreign sector
trades g&s, financial assets, and currencies with the country’s residents

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