NATIONAL ACCOUNT SYSTEM (NAS) Measures the economic activity of the Nation with a double-entry accounting (debit and credit) : Production account (GDP) Income account (wages...) Expenditure account (consumption, savings) Inflation, unemployment.

GDP : a child of the Great Depression Hoover and Roosevelt had incomplete datas to make a decision. Simon Kuznets (1901 -1985) was asked to help the U.S. Department of Commerce to standardize the measurement of GNP

GROSS DOMESTIC PRODUCT (GDP) The total market value of all final goods and services produced within a given period by factors of production located within a country. GDP measures two things at once : the total income of everyone in the economy and the total expenditure on the economy’s output of goods and services.

THE AGENT In economics, an agent is an actor, a decision maker in a model. Individuals, households, firms, government, countries...

Circular flow : input = output

But this distinction is not as clear as that : Goods and services In economics outputs are divided in tangible goods and intangibles services. But this distinction is not as clear as that : Many things are mixed.

Transfer payments (=redistribution of income) EXCEPTIONS Important exception : Government productions are not sold on the market. GDP uses their cost. Intermediate goods Transfer payments (=redistribution of income) Used goods

Consumer goods or intermediate goods Consumer goods are produced for the mass market (≠Final goods which include for instance antics or investment assets) Intermediate goods (or producer goods) are used to produce another good. They are not counted in GDP. Half of them are services.

Intermediate goods Sugar is NOT counted if bought by your favourite pastry shop. However if you cook a pie and buy sugar, it is counted as final good.

GDP ranking (nominal)2011 list by the IMF Country GDP (millions of USD) World 70 011 680 European Union 17 960 206 1 USA 15 064 816 2 China 6 988 470 3 Japan 5 855 383 4 Germany 3 628 623 5 France 2 808 265 6 United Kingdom 2 480 978

GDP vs GNP (Gross National Product) GNP : The total market value of all final goods or services produced within a given period by factors of production owned by a contry's citizens, regardless of where the output is produced.

Determining GDP : expenditure or income approach Expenditure approach : measures the total amount spent on all final goods and services GDP = private consumption + gross investment + government spending + (exports − imports) Income approach : measures the income, wages, rents, interest and profits received by all factors of production in producing final goods and services

The value added approach PARTICIPANTS COST OF MATERIALS VALUE OF SALES VALUE ADDED FARMER 100 CAKE FACTORY 250 150 MIDDLEPERSON 400 VENDOR 500 TOTAL 750 1250

Intermediate goods – Final goods This distinction is important to avoid double counting GDP sums up the value added at each stage of production

Capital goods = final goods Capital good = means of production Inventory change : depreciation must be counted in GDP

Y = C + I + G + (X - Imp.)

NET NATIONAL INCOME NNI = C + I + G + (NX) + net foreign factor income - indirect taxes - depreciation Where: C = Consumption I = Investments G = Government spending NX = net exports (exports minus imports)

Composition of GDP

Composition of GDP http://www.dailymarkets.com/economy/2009/05/14/the-changing-composition-of- gdp/

Composition of GDP by sectors France : : agriculture: 1.7% industry: 18.8% services: 79.4% China : agriculture: 10.3% industry: 46.3% services: 43.4% (2009 est. CIA world factbook)

Factors shares in french corporate sector Source : Piketty (2001) : Income Inequality in France 1901-1998

Who makes the 451 parts of an iPod ? The researchers estimated that $163 of the iPod's $299 retail value in the United States was captured by American companies and workers, breaking it down to $75 for distribution and retail costs, $80 to Apple, and $8 to various domestic component makers. Japan contributed about $26 to the value added (mostly via the Toshiba disk drive), while Korea contributed less than $1.

A (short) quizz Where does eBay (or an antique shop) get counted in the GDP ? And the Stock Exchange ? What about business inventories changes ?

Nominal GDP / Real GDP Nominal GDP is the Gross Domestic Product measured in current dollars (the current price that we pay for goods and services) Real GDP is measured with an adjustment to prices changes (inflation, déflation), using constant prices.

NOMINAL GDP vs REAL GDPGDP DEFLATOR Because prices and exchange rates change, the same output can give very different nominal GDP. GDP deflator : nominal GDP / real GDP X 100

2006 2007 qty price Cars 10 2000 12 3000 Computers 4 1000 6 500 Oranges 1 Use the prices for 2006 as the set of common prices and tell the real GDP for 2006 and 2007. 2006 real (2006) GDP: $25,000 2007 real (2006) GDP: 12($2,000)+6($1,000)+1000($1)=$31,000 Real (2006) GDP has increased by 24%.

2006 2007 qty price Cars 10 2000 12 3000 Computers 4 1000 6 500 Oranges 1 Use the prices for 2007 as the set of common prices and tell the real GDP for 2006 and 2007. 2006 real (2007) GDP: 10($3,000)+4($500)+1,000($1)=$33,000 2007 real (2007) GDP: $40,000. Real (2007) GDP has increased by 21.2%.

2009 : STIGLITZ-SEN-FITOUSSI COMMISION Limitation of the GDP concept : GDP does not measure well-being or social welfare. 2009 : STIGLITZ-SEN-FITOUSSI COMMISION

OTHER THINGS TO KNOW ABOUT GDP Purchasing Power Parity (PPP) Underground economy (in USA it is estimated to be 13%) Tax heaven Per capita GDP

FDI in India by country of origin1991 - 2007 Source : Reserve Bank of India 2008 In China more than 50 % of FDI comes from HK and British Virgin Island

Distinctions must be kept in mind between quantity and quality of growth, between costs and returns, and between the short and long run. Goals for more growth should specify more growth of what and for what. Kuznets (1962)