1. Measuring Economic Performance

2. GDP x GNP The market value of the final goods and services produced by workers and other resources located within the border of a nation over period of one year the market value of final output produced annually by all labour and property supplied by a nation’s households, no matter where those resources are employed

3. Nominal GDP x Real GDP the market value of nation’s final output based on current prices for the goods and services produced during the year an estimate of the value of a nation’s final products based on prices of certain base year

4. Intermediate Products and Value Added Intermediate products – products produced by business firms for resale by other firms or for use as materials or services that will be included in the value of resold good VALUE ADDED = the extra worth that a business firm adds to intermediate products, it is measured by the difference between the market value of a firm’s sales, and the market value of the intermediate products that the firm purchases Total value added = market value of - market value of in a nation (GDP) all products intermediate products

5. Computing Value Added - example Sales transactionsIntermediate purchasesValue added (Sales receipts – Intermediate purchases) 1. EUR 1 mil. sale of cotton by farmers to weavers NoneEUR 1 mil. 2. EUR 2 mil. Sale of cloth by weavers to manufacturer of blue jeans EUR 1 mil. of cottonEUR 1 mil. 3. EUR 4 mil. Sale of blue jeans by blue jean manufacturer to consumers EUR 2 mil. of clothEUR 2 mil. Market value of all products- Market value of intermediate products = Total value added EUR 7 mil.- EUR 3 mil.= EUR 4 mil.

6. METHODS OF MEASURING GDP 1) Flow-of-Product Approach (The EXPANDITURE COMPONENTS OF GDP) 2) Earnings or cost approach (The INCOME SIDE OF GDP)

7. Net National Product - Indirect business taxes and other adjustments National Income - corporate profits - net interest paid - social security (payroll) taxes + government transfer payments + personal interest, dividends and other transfers Personal Income - Personal taxes = Disposable income From NNP to Disposable Income

8. NET ECONOMIC WELFARE GDP Nonmarket production The value of leisure time The underground economy Cost of enviromental damage

9. X Y unattainable waste Potential output Production-possibility frontier

10. Tasks: 1. Based on following dates calculate: GDP, NDP, NI, NX, DI ItemMld. EUR Consumption expenditure600 Personal taxes400 Transfer payments250 Export240 Import220 Government expanditure200 Gross Investment150 Capital consumption allowance60

11. 2. Calculate nominal GDP, net investment and real GDP, assuming GDP deflator 116, C = 740, a = 21, G = 305, X = 194, M = 178, indirect taxes = 289, profits = 357, wages = 481, rents = 9, net interests = 18. 3. Calculate real and nominal GDP using following dates: Output 2000 Output 2006 Price 2000Price 2006 Chicken10015024 Apples10014046 Total