1. Chapter 12
Section 1
Sarah Hall starts, and Bethany Courtney starts at slide 16.

2. National Income Accounting: a system that collects macroeconomic statistics on production, income, investment, and savings.
Early Economists believed that a nation economy would regulate itself.
Periods of high unemployment and low income and output would be temporary and short-lived and would be corrected automatically.

3. The Great Depression: a sever economic decline that lasted from 1929 until the United States entered World War 2.
The United States was devastated by the Great Crash of the stock market in October 1929.
Many economists were convinced that they must find a way to monitor the macroeconomics performance so that downturns like this can be prevented.

4. Today, economists monitor important data macroeconomic data using the national income accounting system.
The data is compiled and presented in the form of National Income and Product Accounts (NIPA), which are maintained by the US Department Of Commerce.
Economic policies are determined by the NIPA.

5. Gross Domestic Product (GDP): the dollar value of all final goods and services produced within a country’s borders in a given year.
Dollar Value is the total of selling prices of all goods and services produced in a country in one calendar year, which are added up to calculate GDP.
GDP is the most important measure the NIPA uses.

6. Intermediate Goods: goods used in the production of final goods.
Final Goods and Services are products in the form sold to customers.
Produced Within a Country’s Borders is very important. The distinction in prices from country to country helps calculate ours worth.

7. Durable Goods: goods that last for a relatively long time, such as refrigerators, cars and DVD players.
Non-Durable Goods: goods that last a short period of time, such as food, light bulbs and sneakers.
The Government (NIPA) also used the Expenditure Approach, sometimes called the Output-Expenditure Approach.

8. Expenditure Approach
First, economics estimate the annual expenditures, or amounts per year, on four categories of final goods or services:
Consumer goods and services
Business goods and services
Government goods and services
Net exports or imports of goods and services.

9. (Consumer goods include durable goods and non-durable goods.)
Economist then add together the amounts spent on all four categories to arrive at the total expenditures on goods and services produced during the year.
The Expenditure Approach is like a circular flow of output and input, it all circles each other and eventually all meets.

10. The Expenditure Approach gives economists a practical way to measure GDP. If they want better accuracy however, they use the Income Approach.
The Income Approach calculates GDP by adding up all the incomes in the economy.
The Income Approach includes a number of steps in how it works…

11. Income Approach
When a firm sells its product, the selling price represents income for the firm’s owners and employees.
Each of these persons may only get a small share of the profits, however they all receive at least some small part.
The same logic holds for all the goods and services produced in the economy.

12. Continuation of Income Approach…
Calculate the GPA by adding up all income earned in the economy.
We can calculate GDP using either the Income Approach or the Expenditure Approach and both calculations should give us the same total. Most often use both totals to make sure they are correct in their judgments.

13. Government policymakers measure the gross domestic product to find out how well the economy is performing.
The measurement must be as accurate as possible.
Comparing the results of both the Income Approach and the Expenditure Approach is one way to judge accurately.
To develop additional information about the economy…

14. …economists distinguish between the two measures of GDP, Nominal and Real.
Nominal GDP: GDP measured in its current prices. (sometimes called “current GDP”.)
To calculate Nominal GDP you simply use the year’s current prices to calculate the value of the current year’s output.

15. To correct distortions made when a general increase in prices only appears to make GDP arise, when in fact the output has not risen, we use Real GDP to fix it.
Real GDP: GDP expressed in constant, or unchanging, prices.
When Real GDP rises, we can be certain whether an economy is producing more goods and services regardless of price changes of items.

16. Non market activities GDP does not measure goods and services that people make or do themselves.
These non market activities include caring for children, mowing the lawn, cooking dinner, or washing the car.

18. Non market activities GDP does not measure goods and services that people make or do themselves.
These non market activities include caring for children, mowing the lawn, cooking dinner, or washing the car.

19. The underground economy is an economy in which a large amount of production and income is never recorded to the government.
Negative externalities or unintended economic side effects, or externalities, have a monetary value that often is not reflected in GDP.

20. Some things that are not counted in GDP contribute greatly to most peoples quality of life, such as pleasant surroundings.
Other things include ample leisure, and personal safety, and time.

21. Gross national product- the annual income earned by U. S
Gross national product- the annual income earned by U.S.- owned firms and U.S. residents.
GNP is a measure of market values of all goods and services produced by Americans in one year.

22. Depreciation- the loss of the value of capital equipment that results from the normal wear and tear.
The cost of replacing this physical capital slightly reduces the value of what we produce.

23. Net national product- is a measure of the net output for one year, or the output made after the adjustment for depreciation.
NNP does not reflect another cost of doing business: Taxes. Now we get another important statistic, called national income.

24. Price level- the average of all prices in the economy.
Now they can determine the aggregate supply:
Aggregate supply- the total amount of goods and services in the economy available at all possible price levels.

25. As prices in the macro-economy move up and down, individuals and businesses change how much they buy.
The dollars that we hold are worth more at lower price levels than they are at higher price levels.

26. As price level rises, purchasing power declines, causing a reduction in the quantity of goods and services demanded.
Any shift in aggregate supply or aggregate demand will have and impact on the GDP and price level.

27. Rising prices give firms an incentive to increase their output.
At higher prices, more goods and services sold means greater profits, at least until producers are forced to pay higher prices for intermediate goods.

28. Black market- is the market for illegal goods, such as drugs, weapons, stolen cars, and exotic animals.
Income from illegal gambling goes unreported. So do under the table wages paid by some companies to avoid paying business and income taxes.

29. Many legal, informal transactions are not reported, as well such as selling your car to a friend or trading your stereo for a bike.
Also not reported transactions include, babysitting, mowing lawns, or shoveling snow.

30. Nominal GDP- that is, GDP measured in current prices.
To calculate nominal GDP, we simply use the current years prices to calculate the value of the current years output.

31. Real GDP- defined as constant, or unchanging prices.
When real GDP rises, we can be certain whether an economy is producing more goods and services, regardless of changing in the prices of those items.

32. Durable goods- those goods that last for a relatively long time, such as refrigerators, cars, and DVD players.
Nondurable goods- those goods that last a short period of time, such as food, light bulbs, and sneakers.

33. Chapter 12 Section 1 Questions
1) What does NIPA stand for?
2) What was the Great Depression and when did it start?
3) Define Gross Domestic Product (GDP).
4) True or False? Intermediate Goods are goods used in the production of final goods?
National Income and Product Accounts
1929; a severely economic decline
Dollar value of all goods and services produced in a year
True
Consumer goods and services
False

34. Continuation of questions…
5) Name a category of Expedition Approach.
6) True or False? Durable goods only last a short time.
7) What is the different between intermediate goods and final goods?
5) Consumer goods and services
6) False
7) Intermediate goods are used in the production of final goods, and final goods are what is sold to the consumer.

35. Continuation of questions…
8) How does gross domestic product (GDP) differ from gross national product? 9) How does nominal GDP differ from real GDP? 10) If economic demand rises, what happens to real GDP? What happens to the price level?
8) GDP measures all the investments, incomes, prices, ect, in a year, and the GNP measures the investments within only the US borders.
9) Nominal GDP is measured in current prices while real GDP is measured in unchanging constant prices.
10) The real GDP goes up, because we can be sure that the economy is doing better, and the price level goes up as well with the real GDP.