Description
GDP: Measuring Total Production and Income
GDP: Measuring Total Production and Income
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Microeconomics The study of how households and businesses make choices, how they interact in markets, and how the government attempts to influence their choices. Macroeconomics The study of the economy as a whole, including topics such as inflation, unemployment, and economic growth. Business cycle Alternating periods of economic expansion and economic recession.
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• Expansion The period of a business cycle during which
total production and total employment are increasing. •Recession The period of a business cycle during which total production and total employment are decreasing. •Economic growth The ability of an economy to produce increasing quantities of goods and services. •Inflation rate The percentage increase in the price level from one year to the next.
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Measuring Total Production: Gross Domestic Product Gross domestic product (GDP) The market value of all final goods and services produced in a country during a period of time.
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Measuring Total Production: Gross Domestic Product GDP IS MEASURED USING MARKET VALUES, NOT QUANTITIES GDP INCLUDES ONLY THE MARKET VALUE OF FINAL GOODS Final good or service A good or service purchased by a final user. Intermediate good or service A good or service that is an input into another good or service, such as a tire on a truck.
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GDP INCLUDES ONLY CURRENT PRODUCTION
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PRODUCTION AND PRICE STATISTICS FOR 2007
(1) PRODUCT (2) QUANTITY (3) PRICE PER UNIT
Eye examinations Pizzas
100 80
$50.00 10.00
Textbooks Paper
(1) QUANTITY
20 2,000
(2) PRICE PER UNIT
100.00 0.10
(3) VALUE
PRODUCT
Eye examinations Pizzas
100 80
$50 10
$5,000 800
Textbooks
20
100
2,000
6
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Production, Income, and the Circular Flow Diagram Transfer payments Payments by the government to individuals for which the government does not receive a good or service in return.
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Production, Income, and the Circular Flow Diagram
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Components of GDP
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PERSONAL CONSUMPTION EXPENDITURES, OR “CONSUMPTION”
Consumption Spending by households on goods and services, not including spending on new houses. GROSS PRIVATE DOMESTIC INVESTMENT, OR “INVESTMENT” Investment Spending by firms on new factories, office buildings, machinery, and inventories, and spending by households on new houses.
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Components of GDP
GOVERNMENT CONSUMPTION AND GROSS INVESTMENT, OR “GOVERNMENT PURCHASES”
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Government purchases Spending by federal, state, and local governments on goods and services.
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Components of GDP
NET EXPORTS OF GOODS AND SERVICES, OR “NET EXPORTS”
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Net exports Exports minus imports. An Equation for GDP and Some Actual Values Y ? C ? I ? G ? NX
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The table provides a more detailed breakdown and shows several interesting points: ? Consumer spending on services is greater than the sum of spending on durable and nondurable goods. ? Business fixed investment is the largest component of investment. ? Purchases by state and local governments are greater than purchases by the federal government. ? Imports are greater than exports, so net exports are negative.
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Shortcomings in GDP as a Measure of Total Production HOUSEHOLD PRODUCTION: Goods and services people produce for themselves.
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THE UNDERGROUND ECONOMY: Buying and selling of goods and services that is concealed from the government to avoid taxes or regulations or because the goods and services are illegal.
13
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Shortcomings of GDP as a Measure of Well-Being THE VALUE OF LEISURE IS NOT INCLUDED IN GDP
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GDP IS NOT ADJUSTED FOR POLLUTION OR OTHER NEGATIVE EFFECTS OF PRODUCTION
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GDP IS NOT ADJUSTED FOR CHANGES IN CRIME AND OTHER SOCIAL PROBLEMS
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doc_376578269.pptx
GDP: Measuring Total Production and Income
GDP: Measuring Total Production and Income
•
Microeconomics The study of how households and businesses make choices, how they interact in markets, and how the government attempts to influence their choices. Macroeconomics The study of the economy as a whole, including topics such as inflation, unemployment, and economic growth. Business cycle Alternating periods of economic expansion and economic recession.
2
•
•
• Expansion The period of a business cycle during which
total production and total employment are increasing. •Recession The period of a business cycle during which total production and total employment are decreasing. •Economic growth The ability of an economy to produce increasing quantities of goods and services. •Inflation rate The percentage increase in the price level from one year to the next.
3
1
•
Measuring Total Production: Gross Domestic Product Gross domestic product (GDP) The market value of all final goods and services produced in a country during a period of time.
•
4
• •
Measuring Total Production: Gross Domestic Product GDP IS MEASURED USING MARKET VALUES, NOT QUANTITIES GDP INCLUDES ONLY THE MARKET VALUE OF FINAL GOODS Final good or service A good or service purchased by a final user. Intermediate good or service A good or service that is an input into another good or service, such as a tire on a truck.
•
•
•
•
GDP INCLUDES ONLY CURRENT PRODUCTION
5
PRODUCTION AND PRICE STATISTICS FOR 2007
(1) PRODUCT (2) QUANTITY (3) PRICE PER UNIT
Eye examinations Pizzas
100 80
$50.00 10.00
Textbooks Paper
(1) QUANTITY
20 2,000
(2) PRICE PER UNIT
100.00 0.10
(3) VALUE
PRODUCT
Eye examinations Pizzas
100 80
$50 10
$5,000 800
Textbooks
20
100
2,000
6
•
•
Production, Income, and the Circular Flow Diagram Transfer payments Payments by the government to individuals for which the government does not receive a good or service in return.
7
•
Production, Income, and the Circular Flow Diagram
8
•
Components of GDP
•
PERSONAL CONSUMPTION EXPENDITURES, OR “CONSUMPTION”
Consumption Spending by households on goods and services, not including spending on new houses. GROSS PRIVATE DOMESTIC INVESTMENT, OR “INVESTMENT” Investment Spending by firms on new factories, office buildings, machinery, and inventories, and spending by households on new houses.
9
•
•
•
•
•
Components of GDP
GOVERNMENT CONSUMPTION AND GROSS INVESTMENT, OR “GOVERNMENT PURCHASES”
•
Government purchases Spending by federal, state, and local governments on goods and services.
10
•
•
Components of GDP
NET EXPORTS OF GOODS AND SERVICES, OR “NET EXPORTS”
• •
Net exports Exports minus imports. An Equation for GDP and Some Actual Values Y ? C ? I ? G ? NX
•
11
The table provides a more detailed breakdown and shows several interesting points: ? Consumer spending on services is greater than the sum of spending on durable and nondurable goods. ? Business fixed investment is the largest component of investment. ? Purchases by state and local governments are greater than purchases by the federal government. ? Imports are greater than exports, so net exports are negative.
12
2
• •
Shortcomings in GDP as a Measure of Total Production HOUSEHOLD PRODUCTION: Goods and services people produce for themselves.
•
THE UNDERGROUND ECONOMY: Buying and selling of goods and services that is concealed from the government to avoid taxes or regulations or because the goods and services are illegal.
13
• •
Shortcomings of GDP as a Measure of Well-Being THE VALUE OF LEISURE IS NOT INCLUDED IN GDP
•
GDP IS NOT ADJUSTED FOR POLLUTION OR OTHER NEGATIVE EFFECTS OF PRODUCTION
•
GDP IS NOT ADJUSTED FOR CHANGES IN CRIME AND OTHER SOCIAL PROBLEMS
14
doc_376578269.pptx