Exploration by liaoqinmei

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									Exploration 11
  Gross Domestic Product
[National Income Accounting]
Thread
   This is the final economic measurement of
    the state of the economy.
   Don’t forget that, besides these three,
    measurements of inequality are also
    important.
You should be able to:
   Define GDP and explain its limits
   List and explain the four components of
    GDP
   Explain why GDP [expenditures] = output =
    income
Verbal questions – final good?
   Mayonnaise
       Purchased by me
       Purchased by State Line diner
   Computer System
       Purchased by me
       Purchased by Verizon
Categories of Final Goods:
Expenditures Approach
   GDP =
       Consumption [C] +
       Investment [I] +
       Government purchases [G] +
       Net exports [X – M]
   GDP = C + I + G + [X – M]
   What is GDP today?
       Bureau of Economic Analysis
Team exercise – Try your skill at
counting GDP [EL p70/71]
   “Clickers”
   A = government
   B = business investment
   C = consumer spending
   D = net exports
   E = excluded
Equality of output, income and
expenditure
   We’ve discussed expenditures
   But how much income will there be in an
    economy?
   The Pie Principle
       The size of the pie we eat is equal to the size of the pie
        we bake
       $10B in production (output) = $10B goods and services to
        use
       Income is just a name for the right to use goods and
        services
Equality of Income and Expenditure
   Circular flow, Fig 7-1, p 167:
       HH selling labor services/buying goods
       BF buying labor services/selling goods
       GDP [Expenditures] = Output = National Income
   Key idea: whatever is produced is paid for
       Wages + rents + interest + profits
       Add: depreciation, indirect business taxes and
        net foreign factor income. [Fig 7-2, p 171]
What’s are some limits to GDP?
                                                [Link]
   Treats “goods” and “bads” the same
       Treats crime, divorce and natural disasters as
        economic gain.
       Environmental spills and cleanups count
   Ignores non-market activity
   Depletion of natural capital as income
   Takes no account of income distribution
Ed Diener, Martin E. P. Seligman, “Beyond Money: Towards an Economy of Well-Being”

http://www.brookings.edu/dybdocroot/comm/events/20040603b.pdf
Counting Expenditures
 & Income: The Pie
      Principle
   Team Exercises [EL p72]
Expenditures*         Income*
C             5660    w              4920
I             1330    prop income    560
G             1470    corp profits   820
X              960    rents          140
-M            -1080   interest       450
              8340    sales taxes    560
                      deprec         890
                                     8340
*$ billions
Next time:
   What is most popular movie of the week?
   What is the most popular movie of all time?

As measured by box-office receipts.
Wrap up: What did you learn?
   What is GDP? What are intermediate
    goods?
   What are the components of GDP:
       Expenditures approach?
       Income approach?

								
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