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2. National Income Accounting11
Section 1
National Income Accounting
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3. What Is Gross Domestic Product?
Gross domestic product (GDP) is the total value of all final goods and services produced annually in a country. .
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4. Why Count Only Final Goods?
sold to its final user.
intermediate good is a good that
Used to make another good or service
double counting, or counting goods more than once.
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5. Does GDP Omit Anything? Illegal goods Used goods house work Barter
Goods/services made in previous years
Financial transactions (stocks, bonds)
Government transfer payments
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6. The Difference Between GDP and GNP
GDP is gross domestic product
Goods and services made in the USA
GNP is the gross national product.
GNP
Made by American companies anywhere in the world
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7. 11
Section 2
Measuring GDP
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8. How is GDP Measured?
The GDP of the United States in 2014 was more than $16 trillion.
Amounts spent by the household sector are called consumption. OR C
Amounts spent by the business sector are called investment. OR I
Amounts spent by government sector: Government OR G
Net Exports (exports – imports) OR (X-I)
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9. GDP Versus Quality of Life
Greater production of goods and services is only
Per capita GDP = GDP ÷ Population. = better standard of living
Leisure v. work
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10. 11
Section 3
Real GDP
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11. The Two Variables of GDP: P and Q
GDP is equal to current prices (P) times the current quantity (Q) of goods produced.
GDP = Current Prices x Current Quantity of Goods Produced
Account for inflation and deflation
= calculate Real GDP
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12. Real GDP vs. GDP
Real GDP is equal to prices in the base year x current quantity of goods produced.
Real GDP = Prices in the base year x Current Quantity of Goods Produced
Cross multiplie
If price is held constant, then any rise in GDP must be due to a rise in quantity
When economists compute GDP by using comparison to a base year, they are said to be computing real GDP.
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13. Exhibit 11-7 from the Student Text
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14. Measuring Price Changes and the Unemployment Rate11
Section 4
Measuring Price Changes and the Unemployment Rate
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15. Calculating the Change in a Single Price
When a good increases in price from one year to the next, it is easy to calculate the percentage of change in price.
For example, if a car increased in price from $20,000 in to $21,500 in 2013, the percentage change in price was 7.5 percent.
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16. The Consumer Price Index
A price index is a measure of the price level, or the average level of prices.
The most widely used price index is the consumer price index (CPI).
Urban family of 4
What they need to survive
Bread Basket
COMPARE OVER TIME, REGIONAL, INTERNATIONALLY
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17. Determining the Quantity of Goods and Services and the Price Level
AGGREGATE DEMAND
SHORT RUN AGGREGATE SUPPLY
LONG RUN AGGREGATE SUPPLY
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18. Who Are the Unemployed? Labor Force – Employed = Unemployed
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19. Exhibit 11-10 from the Student Text
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20. The Unemployment and Employment Rates
The unemployment rate is the percentage of the civilian labor force that is unemployed. It is equal to the number of unemployed persons divided by the civilian labor force.
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21. The Unemployment and Employment Rates (cont.)
The employment rate is the percentage of the non- institutional adult civilian population that is employed. It is equal to the number of employed persons divided by the non-institutional adult civilian population.
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