1. Chapter 19 Measuring Economic Activity Introduction to Economics (Combined Version) 5th Edition

2. GDP  Gross domestic product is the value, at current market prices, of all final goods and services produced annually in a given country.  Final goods and services are those sold to parties who will use them for consumption, investment, government purchases, or exports.  Not included in GDP:  Intermediate goods used in production of other goods  Sales of used goods  Most financial transactions Introduction to Economics (Combined Version) 5th Edition Medical care is a service included as part of gross domestic product.

3. GDP and Value Added  GDP must include only the value of final goods and services if it is to measure total production without double counting.  The value of sales at each stage of production can be divided into the value added at that stage and the value of purchased inputs.  The selling price of the final product (a $100 table, in this case) equals the sum of the values added at all stages of production. Introduction to Economics (Combined Version) 5th Edition

4. Expenditure Approach to GDP  Gross domestic product is estimated using the expenditure approach.  This involves adding together the values of expenditures on newly produced final goods and services made by all economic units: C+I+G+(Ex-IM).  Net domestic product is derived from gross domestic product by excluding the value of expenditures made to replace worn-out or obsolete capital equipment. Introduction to Economics (Combined Version) 5th Edition US, 2012

5. National and Domestic Income  National and domestic income are measured using the income approach.  National income is obtain by adding together the values of all forms of income earned by a country’s residents.  Domestic income is derived from national income by subtracting receipts of factor income from the rest of the world and adding factor income paid to the rest of the world. Introduction to Economics (Combined Version) 5th Edition US, 2012

6. Balance of Payments Accounts (1)  Current account transactions consist of imports and exports of goods and services, together with international flows of factor income and transfer payments.  The US had a current account deficit of $674 billion in 2012. Introduction to Economics (Combined Version) 5th Edition 2012, Billions of Dollars

7. Balance of Payments Accounts (2)  Capital and financial account transactions consist of international borrowing and lending, securities transactions, direct investment, and official reserve transactions.  If all amounts were measured completely and accurately, the current account and financial account balances would be equal and opposite in sign.  In practice, there is a statistical discrepancy indicating errors and omissions in measurement. Introduction to Economics (Combined Version) 5th Edition 2012, Billions of Dollars

8. Consumer Price Index for a Simple Economy  To calculate the consumer price index, divide the value of base- year prices valued at current-year prices by the value of base-year goods valued at base-year prices.  In this case, the CPI is 170. Introduction to Economics (Combined Version) 5th Edition

9. How Good Are the GDP Accounts?  U.S. national accounts are among the best in the world, but they still suffer from major limitations:  Accuracy vs. timeliness  Biases in price indexes and changes in quality of goods  Omission of the underground economy  Omission of nonmaterial sources of welfare Introduction to Economics (Combined Version) 5th Edition The quality of computers has increased rapidly even as their price has fallen.