1. Chapter 12 Section 1

2.  National Income Accounting ◦ Look at production, income, investment, and savings ◦ Department of Commerce

3.  Defining GDP  The dollar value of all final goods and services produced within a country’s borders in a given year ◦ Dollar value – total cash value ◦ Final Goods and Services – no intermediate goods ◦ Produced within a country’s borders ◦ In a given year – excludes resells (ex: cars)

4.  Expenditure Approach ◦ Consumer g&s  Durable and nondurable goods ◦ business g&s ◦ government g&s ◦ net exports  Exports - imports

5.  Income Approach ◦ Add up all the incomes in the economy minus the dollar value for the goods and services purchased from other firms (material costs) ◦ In theory, Income and Expenditure Approach should give you the same total

6.  Nominal GDP ◦ GDP calculated in current prices  Real GDP ◦ GDP expressed in constant, or unchanging, prices ◦ Use a base year of prices to compare things, giving a more accurate depiction of the economy ◦ Changes in price should not affect GDP

7.  Nonmarket Activities  The Underground Economy  Negative Externalities  Quality of Life ◦ More stuff = better life????

8.  Gross National Product (GNP) ◦ Annual income earned by a nation’s firms and citizens ◦ Does not account for depreciation of capital equipment  Net National Product (NNP) ◦ GNP – cost of depreciation  National Income (NI)  Personal Income (PI) ◦ NI – reinvested profits, income taxes, SS taxes  Disposable Personal Income (DPI) ◦ Money you have to spend after taxes

9.  Aggregate Supply ◦ Supply curve for the entire economy ◦ Compare Real GDP (x-axis) and price level (y-axis)  Price level – the average of all prices in the economy  Aggregate Demand ◦ The amount of goods and services in the economy that will be purchased at all possible price levels