Measuring the Nation’s Output and Income

Gross Domestic Product (GDP) The dollar value of all final goods, services, and structures produced within the country’s national borders during one year

Multiply what is produced by it’s price Measuring GDP Multiply what is produced by it’s price It is impossible to track every single sale so statisticians use scientific sampling to estimate real values GDP is estimated quarterly

Intermediate Products Secondhand Sales Nonmarket Transactions Excluded in GDP Intermediate Products Secondhand Sales Nonmarket Transactions Underground Economy

Real GDP – Measured with a set of constant base year prices Current GDP vs. Real GDP Base Year Real GDP – Measured with a set of constant base year prices Current GDP – Measured with prices for the given year

GDP divided by the population GDP Per Capita GDP divided by the population Tells you the amount of output per person

Tells nothing about composition of output Limitations of GDP Tells nothing about composition of output Tells little about the impact of production on the quality of life Some things in GDP give us little utility or satisfaction

Gross National Product (GNP) The dollar value f all final goods, services, and structures produced in one year with labor and property owned by a country’s residents

GNP minus depreciation Net National Product GNP minus depreciation Depreciation is capital consumption allowances, it represents equipment that wore out or became obsolete during the year

Income that is left after all taxes are subtracted National Income Income that is left after all taxes are subtracted

Personal Income Total amount of income going to consumers before individual income taxes are subtracted

Disposable Personal Income The total income the consumer sector has at its disposal after personal income taxes

Economic Sectors and Circular Flow