1. Measuring the Nation’s Output
Chapter 13, Section 1

2. Gross Domestic Product (GDP)
Most important measure of economy’s overall performance
GDP= final goods + final services + final structures (pg 342, Figure 13.1)
Production in U.S. plants located in Mexico, Canada or other countries is not counted

3. What is excluded?
Intermediate products – products that are used to make other products
Secondhand sales – sales of used goods
Nonmerchant transactions – transactions that do not take place in the market
Underground economy – illegal and unreported activity (gambling, smuggling, drugs, and counterfeiting)

4. Limitations of GDP Tell us nothing about composition of output
Tells us little about the impact of the quality of life
Despite limitations it is still our best overall measure of economic health

5. Measure of National Income (pg.345, Figure 13.2)
Gross National Product (GNP): the dollar value of all final goods, services and structures produced in one year
Income of all Americans
Payments to Americans – Payments to Foreign Countries = GDP -> GNP

6. GNP – Measure of National Income
Net National Product (NNP): GNP less depreciation
National Income (NI): income left after all taxes (except corporate profits tax) subtracted from NNP
Personal Income (PI): total income going to consumers before individual income taxes are subtracted

7. National Income -> Personal Income
Subtract income that does not go to the consumer
Subtract corporate income
Subtract Social Security contributions
Add back Social Security, Medicaid, etc.

8. Disposable Personal Income (DI)
Total income the consumer sector has at its disposal after personal income taxes

9. Circular Flow of Economic Activity Page 347, Figure 13.3

10. Output-Expenditure Model
Macroeconomic model used to show demand by the consumer, investment, government and foreign sectors
GDP= C + I + G + (X-M)