1. Chapter 11 Gross Domestic Product
Lecture Slides
Survey of Economics Irvin B. Tucker
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2. What is national income accounting?
The system used to measure the aggregate income and expenditures for a nation
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3. What is gross domestic product?
GDP is the market value of all final goods and services produced in a nation during a period of time, usually a year
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4. © 2016 south-Western, a part of Cengage Learning
What are final goods?
Finished goods and services produced for the ultimate user
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5. What are intermediate goods?
Goods and services used as inputs for production of final goods
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6. Does GDP count intermediate goods?
No, to avoid double counting, GDP only measures final goods and services
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7. What is an advantage of using GDP?
GDP measures value using dollars, rather than a list of the number of goods and services
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8. Does GDP measure secondhand transactions?
No, current GDP does not include the sale of a used car or the sale of a home constructed some years ago. To include these items would be double counting because they were counted in GDP when they were new.
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9. What is a transfer payment?
A government payment to individuals, not in exchange for goods or services currently produced. Such nonproductive transactions are not counted in GDP.
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10. Does GDP measure nonproductive financial transactions?
No, GDP does not count purely private or public financial transactions such as giving gifts, stocks, bonds, or transfer payments
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11. What is a circular flow model?
A model that show us how all the pieces of the GDP puzzle fit together
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12. Basic Circular Flow Model
Product markets
Goods & Services
Supply
Demand
Spending
Exhibit 11-1
Households
Businesses
Basic Circular Flow Model
Demand
Factor Payments
Factor markets
Supply
Factors of Production 12
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13. What is the expenditure approach?
The national income accounting method that measures GDP by adding all the spending for final goods and services
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14. What are the four sectors of GDP?
Consumption
Investment
Government
Foreign (X - M)
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15. © 2016 south-Western, a part of Cengage Learning
GDP = C + I + G + (X - M)
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16. © 2016 south-Western, a part of Cengage Learning
Exhibit 11-2 Gross Domestic Product Using the Expenditure Approach, 2013
Amount
Percent of GDP
National Income Account
(trillions of dollars)
Personal consumption expenditures ( C ) $ %
Durable goods $1.3
Nondurable goods
Services
Gross private domestic Investment ( I )
Fixed investment
Change in business inventories
Government consumption expenditures
and gross investment ( G )
Federal
State and local
Net exports of goods and services (X-M )
Exports ( X )
Imports ( M )
Gross domestic product ( GDP ) $ %
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17. Exhibit 11-3 An International Comparison of GDPs, 2013
$16.8
GDP (Trillions of dollars)
$9.2
$4.9
$3.6
$2.5
$2.1
$1.8
$1,8
$1.3
United States
China
Japan
Germany
United Kingdom
Russia
India
Canada
Mexico
Country
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18. What are shortcomings of GDP?
Nonmarket transactions
Distribution, kind, and quality of products
Neglect of leisure time
Underground economy
Economic bads
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19. What is a conclusion from the shortcomings of GDP ?
GDP is a quantitative, rather than qualitative, measure of the output of goods and services
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20. What other national accounts measure economic performance?
National Income
Personal Income
Disposable Personal Income
Nominal and Real GDP
GDP Chain Price Index
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21. What is national income?
NI is the total earned by resource owners, including wages, rents, interest, and profits
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22. © 2016 south-Western, a part of Cengage Learning
Exhibit 11-4 National Income Calculated from Gross Domestic Product, 2013
Amount
National Income Account
(trillions of dollars)
Gross domestic product (GDP) $16.8
Depreciation
National income $14.5
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23. What is personal income?
PI is the total income received by households that is available for consumption, saving, and payment of personal taxes
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24. © 2016 south-Western, a part of Cengage Learning
Exhibit 11-5 Four Measures of the Macro Economy 24
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25. © 2016 south-Western, a part of Cengage Learning
Exhibit 11-6 Personal Income Calculated from National Income, 2013
Amount
National Income Account
(trillions of dollars)
National income (NI ) $14.5
Corporate profits
Transfer payments and other income
Personal income ( PI ) $14.1
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26. What is disposable personal income?
DI is the amount of income that households have to spend or save after payment of personal taxes
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27. © 2016 south-Western, a part of Cengage Learning
Exhibit 11-7 Disposable Personal Income Calculated from Personal Income, 2013
Amount
National Income Account
(trillions of dollars)
Personal income ( PI ) $14.1
Personal taxes
Disposable personal income ( DI ) $12.5
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28. © 2016 south-Western, a part of Cengage Learning
What is nominal GDP?
The value of all final goods based on the prices existing during the time period of production
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29. © 2016 south-Western, a part of Cengage Learning
What is real GDP?
The value of all final goods produced during a given time period based on the prices existing in a selected base year
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30. What is the chain price index?
A measure that compares changes in the prices of all final goods during a given period to the prices of those goods in a base year
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31. © 2016 south-Western, a part of Cengage Learning
nominal GDP
GDP chain price index
Real GDP =
X 100
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32. Exhibit 11-8 Nominal GDP, Real GDP, and the GDP Chain Price Index
(3)
(1)
(2)
Real GDP (billions of 2009 dollars)
GDP Chain Price Index (2009 = 100)
Nominal GDP (billions of dollars)
Year
, ,
, ,
, , ,8
, ,
, ,
, ,
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33. Exhibit 11-8 Nominal GDP, Real GDP, and the GDP Chain Price Index
18,000
16,000
14,000
Real GDP and Nominal GDP (billions of dollars per year)
12,000
10,000
Real GDP
8,000
6,000
4,000
Nominal GDP
2,000
Base year
Year
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