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1、National Income and Production Accounting,Measuring changes in general economic activityInterpreting production and income measuresChapters 2 and 3 in Hoover,1,Circular Flow,2,Aggregate Income,Expenditure and ProductionAll production revenues paid out in some form of income(either costs or profit)If
2、 production exceeds or falls short of expenditure,the difference is a change in inventory which is considered investment expenditure Measure aggregate activity either from:1.the production side,2.the expenditure side,or 3.the income side.,3,I.THE PRODUCTION SIDEGross Domestic Product(GDP)Goods and S
3、ervices(no transfers)Final(not resold,no intermediate goods)Current Production(not used,not sold from inventories)At Market Prices(price paid by end user;black market,externalities and household production excluded)Produced Domestically(not US/Canada citizens abroad)What is excluded from GDP?Leisure
4、,environmental cost,quality,etc.,4,Two ways to measure GDP on production side:Final goods and services onlySum of Values Added in each stage of the production process.Silicone,Intel Chip,HP PC,Best Buy.In principle equivalent,but(1.)measures GDP at Market Prices and(2.)measures GDP at Factor Prices.
5、GDP-factor prices=GDP-market prices Indirect Taxes+Government Subsidies,5,Value Added and Final Sales methods,6,Gross Domestic vs.Gross National ProductGDP:values added within the countryGNP:values added through factors of production owned by residentsGNP=GDP+factor payments from ROW factor payments
6、 to ROWGNP used before 1991;GDP after 1991,7,8,National Income vs.Personal Income PI=income actually received by households PI=NI-Corporate Profits-Social Insurance Contributions-Net Interest payments-Net Business Transfer payments+Personal Income on Assets+Personal Transfer receipts,NI=NNP(GNP Cons
7、umption of Fixed Capital)-Indirect Business Taxes net of subs.+statistical discrepancyNote:NI factor basis;NNP market basis,9,II.THE EXPENDITURE SIDE,GDP=C+IGROSS+G+(X-M)1Expenditures by all sectors:Household(70%):ConsumptionFirm(16%):Gross Private Investment fixed investment(structures and equipmen
8、t),inventory investment Government(19%):Excludes transfer paymentsForeign(12%-17%=-5%):Subtract imports of households,firms,government since expenditures but not produced-M=CM+IM+GM2,10,11,Definition of Savings:All disposable income not consumed.Also,GDP=GDI 3(if statistical discrepancy is ignored)S
9、o:SGROSS=GDP T C 4,andSGROSS+T+C=C+IGROSS+G+(X-M)5IGROSS=SGROSS(G-T)(X-M)6Subtract depreciation=depreciation allowances:I=S(G-T)(X-M)7Investment equals savings minus the budget deficit minus the trade surplus.,12,III.THE INCOME SIDE,NI=sum of all Factor payments(to capital,labor,land,entrepreneurship)NI=Employee Compensation wages,salaries,fringe benefits+Net Interest Income+Proprietors Income farms,shops+Corporate Profits+Rental Income,13,
