Output and National Income

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Presentation transcript:

Output and National Income Chapter 4 Output and National Income © OnlineTexts.com p. 1

Gross Domestic Product Gross Domestic Product (GDP) is the money value of all final goods and services produced in a country's borders in a given year. (2006 U.S. nominal GDP  $13.0 trillion.) © OnlineTexts.com p. 2

Gross Domestic Product GDP does not include: Sale of used goods Production of intermediate goods The underground economy Purely financial transactions Non-market transactions Imports © OnlineTexts.com p. 3

Shortcomings of GDP Gross Domestic Product is not a perfect measure of the health of a nation's economy. does not measure directly many quality-of-life issues such as the environment and public safety. fails to account for the leisure time we enjoy. does not decrease with the destruction of goods and services. GDP weights all production by its market value regardless of the impact that it has on consumers. disregards how the wealth and consumption in the nation is distributed. © OnlineTexts.com p. 4

GDP can be measured in one of three ways: Measuring GDP GDP can be measured in one of three ways: The expenditure approach add up the expenditures on all final goods and services. The income approach add all the income earned by individuals in the domestic country. The value-added approach count only the value that each firm adds to the production process. subtract cost of raw materials © OnlineTexts.com p. 5

Gross National Product Gross National Product is the money value of all final goods and services produced by a country's citizens in a given year, regardless of the location of the production. © OnlineTexts.com p. 6

GDP versus GNP © OnlineTexts.com p. 7

GDP versus GNP For the U.S., GDP and GNP are nearly equal. © OnlineTexts.com p. 8

The Business Cycle This cyclical behavior of the economy's level of output through time is known as the business cycle. The downward periods of negative real growth in GDP are called recessions. A recession is loosely defined as six or more consecutive months of decline in real GDP. The National Bureau of Economic Research has the responsibility of dating business cycles. © OnlineTexts.com p. 9

The Business Cycle The U.S. economy slipped into recession in March 2001, but pulled out of it in November of that year. © OnlineTexts.com p. 10