Notes (1/27/15)- GDP/GNP
- GDP- total dollar value of all goods & services produced within a country's borders within a given year
- GNP- total value of all final goods and services produced by Americans in a year
- Included in GDP:
- C+Ig+G+Xn
- C:consumption
- 67% of economy
- has to be final good or service
- Ig: gross private domestic investment
- factory equipment maintenance
- new factory equipment
- construction of housing
- unsold inventories of products built in a year
- G: government spending
- military spending
- education
- Xn: net exports
- Excluded from GDP:
- (1) Non-market activities
- volunteering
- family work
- illegal drugs
- (2) Intermediate goods
- goods/services that are purchased for resale or for further processing
- trying to avoid double or multiple counting
- things that go into making something
- (3) Used or second-hand goods
- not counted because it was counted the first time purchased
- (4) Financial transactions
- stocks, bonds, and real estate
- (5) Gifts or transferred payment
- private transfer payments produce no output
- public transfer payments recipients contribute nothing to the current production
Calculating Cost of GDP:
- Expenditure approach
- Income approach- add up all the income earned by households and firms in a single year
- Wages+Rent+Interest+Profit+Statistical Adjustments
Budget Formula: government purchases of goods & services + government transfer payments - government tax and fee collections
-if # is positive = deficit
-if # is negative = surplus
Trade Formula: exports - imports
GNP Formula: GDP + net foreign factor payment
NNP Formula: GNP - depreciation
NDP Formula: GNP - depreciation
National Income Formula: (1) GDP - indirect business taxes - depreciation - net foreign factor payments (2) compensation of employees + rental income + interest income + proprietors income + corporate profits
Disposable Personal Income Formula: national income - personal household taxes + government transfer payments
Nominal GDP: the value of output produced in current prices
-price * quantity
-an increase from year to year if either output or price increases
Real GDP: the value of output produced in constant or base year prices
-price * quantity
-can increase from year to year only if output increases (output measured by quantity)
-real GDP only reflects base year prices because of inflation
Price Index
- measures inflation by tracking changes in the price of a market basket of goods compared to the base year
- price of market basket of goods in current year / price of market basket of goods in base year * 100
GDP Deflator
- price index used to adjust from nominal to real GDP
- in base year, GDP deflator will equal 100
- for years after base year, GDP deflator is greater than 100
- for years before base year, GDP deflator is less than 100
- Nominal GDP / Real GDP * 100
Calculating Inflation
- new GDP deflator-old GDP delfator / old GDP deflator * 100
