1. National Income Accounting The overall input and output of a nation’s economy You can’t know where you’re going if you don’t know where you are and where you’ve been

2. National Income Accounting Aggregate = sum total Gross Domestic Product [GDP] = the aggregate of all final goods & services “people” (consumers & business) are able to purchase (ready to use). Broadest and most important measurement

3. National Income Accounting orGDP = goods and services “domestically” whether American or foreign. GNP = goods and services produced by Americans worldwide DON’T CONFUSE THEM Which is the more important number?

4. GDP – Explained Chapter 14 This video from Youtube encompasses many terms you should understand by the time we finish Chapter 14

5. GDP – Explained Components Consumer Spending 65% Business Investment 15% Government Spending 20% “NET” Exports* 0% 100% * U.S. frequently runs a trade deficit

6. Top 5 GDPs * European Union $14,882 1 United States$14,660United States 2 China$10,090China 3 Japan$ 4,310Japan 4 India$ 4,060India 5 Germany$ 2,940Germany * In Billions – Estimated 2010 ** Source: CIA Fact Book

7. GDP – Explained GDP is expanding > Companies produce more > Jobs are created = Inflation “worries” GDP is contracting > Companies produce less = No new jobs and potential layoffs (high unemployment) RecessionDefinition of Recession = Two consecutive quarters (6 months) of contracting GDP

8. GDP - Explained If GDP is growing too fast (inflation) – Government policy will attempt to slow it If GDP is growing too slowly (or contracting) – Government policy will attempt to stimulate it Two types of Government Action: Fiscal Policy & Monetary Policy (future lessons)

9. GDP – Break Down GDP GDP – Depreciation = NDP NDP NDP – Indirect Taxes = NI NI NI – Direct Taxes + Transfer Payments = PI PI PI – Personal Taxes (Income) = DI

10. GDP – Break Down GDP (minus) Depreciation (decrease in value do to “wear & tear”) = NDP – Net Domestic Product

11. GDP – Break Down NDP (minus) “Indirect” Taxes (sales, property tax, licensing fees) = NI – National Income (wages, salaries, self-employed income, rentals, corporate profits, interest earned on investments) NOTNOT “Transfer Payments – welfare, Social Security, Medicare

12. GDP – Break Down NI – National Income (minus) corporate taxes, reinvested profits, employer social security contributions + Transfer Payments = PI – Personal Income (minus) personal income taxes = DI – Disposable Income

13. Income Approach To Calculating GDP The approach we just viewed is called the “expense” method (money spent) The other approach is the “income” method (money earned)

14. Income Approach To Calculating GDP Wages (all forms of labor income) + Interest (received by households) + Rents (received from properties) + Profits (earned by businesses) = GDP (comes out about the same as the expense method)