1. BRINNER 1 6.ppt The National Income Accounts and the Government Budget Lecture 6

2. BRINNER 2 6.ppt National Income and Product Accounting u Income and Spending on Domestic Goods Should Add to Same Total, which is also Domestic Output u All Measure the Value-Added Purchased and Provided u Spending=Purchases of buying groups: households, business, government, foreign buyers u Income=Earnings of all types: wages, rent, interest, dividends, retained earnings, depreciation allowances

3. BRINNER 3 6.ppt Spending=Purchases of buying groups: households, business, government, foreign u Don’t Double Count -- Only Final Purchases by Final User Are Added Up u Deduct Purchases from Foreign Suppliers and Add Purchases by Foreign Buyers u GNP/GDP = All Final Purchases by Domestic Buyers - Imports + Exports u GNP=Output Produced by Factors Owned by US u GDP=Output Produced in Our Borders

4. BRINNER 4 6.ppt Income = Earnings of all types: wages, rent, interest, dividends, retained earnings, depreciation allowances u Gross Product vs. Net Product/ Income: –the difference is just depreciation, the using up of output (capital) created in earlier periods –a.k.a. “capital consumption allowance” u NNP vs National Income –the difference is a set of sales-like (“excise”) taxes collected before any private sector unit calculates its income

5. BRINNER 5 6.ppt Income = Earnings of all types: wages, rent, interest, dividends, retained earnings, depreciation allowances u National Income: the economic pie sliced up among the private sector participants u Households earn wages, benefits, interest, rent, and “entrepreneurial income” (laymen call them profits, but these are not earned by a formal corporation) u Corporations earn the residual: “profits”, and then pay part out as dividends to households u Both pay some taxes, get some transfers (negative taxes)

6. BRINNER 6 6.ppt The Relationships among the Basic Spending and Income Categories

7. BRINNER 7 6.ppt The Relationships among the Basic Spending and Income Categories

8. BRINNER 8 6.ppt Unemployment Rate (Inverted scale) Profits as % of GDP Note: “Profit Margin” defined as Profits/GDP; Falling unemployment rate is viewed as a strengthening economy Profit Share of GDP Unemployment Rate The Profit Share of GDP cycles around 6%, rising when the economy strengthens (as indicated by a falling unemployment rate)

9. BRINNER 9 6.ppt The Relationships among the Basic Spending and Income Categories

10. BRINNER 10 6.ppt The Federal Budget

11. BRINNER 11 6.ppt State & Local Budgets