KECSS Ms. Murren Economics1/3/12 Outcome: SWBAT identify, compare and explain National Income, GDP and NDP

What is National Income Accounting?  National Income Accounting is the measurement of the national economy’s performance, dealing with the overall economy’s output and income  It is measured by  The Gross Domestic Product (GDP)  Net Domestic Product (NDP)  National Income  Personal Income  Disposable Personal Income

What is Gross Domestic Product  The broadest measure of the economy’s size is gross domestic product (GDP). It is the total dollar value of all final goods and services produced in a nation in a single year.  The word value in the is important, it means more than just saying the 3 billion safety pins and 2 space shuttles were produced. We need to know the value of the items using some common measure. Economists use the dollar as the common measure of value. For example the in 2006 the GDP for the US was $13 trillion.  The word final in the definition of GDP is also important. It means that economists add up only the value of final goods and services to avoid double counting. For example consider all the parts that go into computers. When calculating GDP we do not take into consideration, the price of memory chips and motherboards if these chips etc are installed in the computer for sale. The final sale price of the computer already includes the cost price of these items. Also only the sale of new items are included in the GDP. The sale price of a used car for example is not counted. A new battery (installed in the used car) would however be counted

How is GDP computed?  To derive GDP economists add expenditures made in four categories.  Consumer Sector (C)- The goods and services bought directly by consumers.  Investment Sector (I)- Business purchases of items used to produce other goods  Government Sector (G) – Goods and services bought by the government  Net Exports (X) – the difference between the nation’s exports and imports. This figure maybe a plus or minus depending on economic activity in a given year. GDP statistics have weaknesses, for example some workers are given food or lodging as part of their wages. Therefore GDP is just included an estimate of their value.

What is Net Domestic Product?  The loss of value of goods and services because of wear and tear is called depreciation. GDP disregards depreciation. It does not take into account that come production merely keeps machines and equipment in working order and replaces them when they wear out. Net Domestic Product takes into account the fact that some production is lost to depreciation NDP takes GDP and subtracts the total loss in the value of capital goods caused by depreciation.

What is National Income (NI)?  The total income earned by everyone in the economy. This includes the income of those who use their own labor as well as those who own the factors of production. NI is equal to the sum of all income resulting from wages, salaries, income of self-employed individuals, rental income, corporate profits and interest on savings and otherinvestments

What is Personal Income?  The total income that individuals receive before personal taxes are paid  Disposable personal income (DPI) is the income remaining for people to spend or save after all taxes have been paid