Aplia PROD SRVMaterialstnvu7 0001 10

7/23/2019 Aplia PROD SRVMaterialstnvu7 0001 10

1/45

2015 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in hole or in part, e!cept "or use as

per#itted in a license distributed ith a certain product or service or otherise on a passord$protected ebsite "or classroo# use.

%eventh &dition

Macroeconomics

Principles of

N. Gregory Mankiw

CHAPTER

10

Measuring a

Nations Income

W

ojciechGerson(1831-1

901)


2/45

2 2015 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in hole or in part, e!cept "or use as


In this chapter,

look for the answers to these questions

What is Gross Domestic Product (GDP)?

How is GDP related to a nations total incomeand spendin!?

What are the components of GDP?

How is GDP corrected for inflation?

Does GDP measure societ"s well#$ein!?




3/45



%icro &s' %acro

Microeconomicshe stud" of how indi&idual households andfirms make decisions, interact with one anotherin markets'

Macroeconomicshe stud" of the econom" as a whole'


4/45



Income and *+penditure

Gross Domestic Product (GDP)measurestotal income of e&er"one in the econom"'

GDP also measures total e+penditure on theeconom"s output of !s'

For the economy as a whole,

income equals expenditure

because every dollar a buyer spends

is a dollar of income for the seller.


5/45



he -ircular#.low Dia!ram

a simple depiction of the macroeconom" illustrates GDP as spendin!, re&enue,

factor pa"ments, and income

Preliminaries Factors of productionare inputs like la$or,

land, capital, and natural resources'

Factor paymentsare pa"ments to the factors

of production (e'!', wa!es, rent)'


6/45



6


Households

own the factors of production,sell/rent them to firms for income

$u" and consume !oods ser&ices

Households.irms

Firms

$u"/hire factors of production,

use them to produce !oodsand ser&ices

sell !oods ser&ices


7/45




%arkets for.actors ofProduction

Households.irms

Income (0GDP)Wa!es, rent,profit (0GDP)

.actors ofproduction

1a$or, land,capital

2pendin! (0GDP)

G 2$ou!ht

G 2sold

3e&enue (0GDP)%arkets for

Goods 2er&ices


8/45

! 2015 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in hole or in part, e!cept "or use as


What his Dia!ram 4mits

he !o&ernment collects ta+es, $u"s !s

he financial s"stem matches sa&ers suppl" of funds with

$orrowers demand for loans

he forei!n sector trades !s, financial assets, and currencies

with the countr"s residents


9/45

" 2015 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in hole or in part, e!cept "or use as


"

5the market &alue of all final !oods

ser&ices produced within a countr"

in a !i&en period of time'

Gross Domestic Product (GDP) Is5

Goods are valued at their market prices, so:

All goods measured in the same units

(e.g., dollars in the U..!

"hings that don#t have a market value aree$cluded, e.g., housework you do for yourself.


10/45

#$ 2015 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in hole or in part, e!cept "or use as


#$





Final goods:intended for the end user

Intermediate goods: used as components

or ingredients in the production of other goods

G%& only includes final goods'they already

embody the value of the intermediate goods

used in their production.


11/45

## 2015 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in hole or in part, e!cept "or use as


##





G%& includes tangible goods

(like %%s, mountain bikes, beer!

and intangible services

(dry cleaning, concerts, cell phone service!.


12/45

#2 2015 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in hole or in part, e!cept "or use as


#2





G%& includes currently produced goods,

not goods produced in the past.


13/45



#3





G%& measures the value of production that occurs

within a country#s borders, whether done by its own

citi)ens or by foreigners located there.


14/45



#4





Usually a year or a *uarter (+ months!


15/45



#5

he -omponents of GDP

3ecall GDP is total spendin!'

.our components -onsumption (C) In&estment (I)

Go&ernment Purchases (G) 6et *+ports (NX)

hese components add up to GDP (denotedY)

Y = C + I + G +

NX


16/45



-onsumption (-)

is total spendin! $" households on !s' 6ote on housin! costs

.or renters,

consumption includes rent pa"ments'

.or homeowners,

consumption includes the imputed rental &alue

of the house, $ut not the purchase price or

mort!a!e pa"ments'


17/45

# 2015 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in hole or in part, e!cept "or use asper#itted in a license distributed ith a certain product or service or otherise on a passord$protected ebsite "or classroo# use.

In&estment (I)

is total spendin! on !oods that will $e used inthe future to produce more !oods'

includes spendin! on capital equipment (e'!', machines, tools) structures (factories, office $uildin!s, houses) in&entories (!oods produced $ut not "et sold)

ote: Investmentdoes notmean the purchase of financial

assets like stocks and bonds.


18/45

#! 2015 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in hole or in part, e!cept "or use asper#itted in a license distributed ith a certain product or service or otherise on a passord$protected ebsite "or classroo# use.

Go&ernment Purchases (G)

is all spendin! on the !s purchased $" !o&tat the federal, state, and local le&els'

Ge+cludes transfer payments, such as2ocial 2ecurit" or unemplo"ment insurance$enefits'

he" are not purchases of !s'


19/45

#" 2015 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in hole or in part, e!cept "or use asper#itted in a license distributed ith a certain product or service or otherise on a passord$protected ebsite "or classroo# use.

6et *+ports (67)

NX0 e+ports 8 imports

*+ports represent forei!n spendin! on theeconom"s !s'

Imports are the portions ofC

,I, and

Gthat are spent on !s produced a$road'

9ddin! up all the components of GDP !i&es

Y = C + I + G +

NX


20/45

2$ 2015 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in hole or in part, e!cept "or use asper#itted in a license distributed ith a certain product or service or otherise on a passord$protected ebsite "or classroo# use.

2$

:'2' GDP and Its -omponents, ;

8=,@@

A,BA

B,C>@

>C,>A

E>,>C + =


35/45

35 2015 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in hole or in part, e!cept "or use asper#itted in a license distributed ith a certain product or service or otherise on a passord$protected ebsite "or classroo# use.

GDP and *conomic Well#Fein!

$eal !P per capita is t%e main indicator o"t%e average person&s standard o" living#

Fut GDP is not a perfect measure ofwell#$ein!'

3o$ert Kenned" issued a &er" eloquent"et harsh criticism of GDP


36/45


36

Gross %omestic Pro&uct'

(' &oes not allow for t)e )ealt) of our

c)il&ren* t)e +uality of t)eir e&ucation*

or t)e ,oy of t)eir play.It &oes not

inclu&e t)e -eauty of our poetry or

t)e strengt) of our marriages* t)e

intelligence of our pu-lic &e-ate or

t)e integrity of our pu-lic officials.It measures neit)er our courage* nor our wis&om*

nor our &eotion to our country.It measures eeryt)ing* in s)ort* e/cept

t)at w)ic) makes life wort)w)ile* an& it can tell us

eeryt)ing a-out 0merica e/cept w)y we are prou& t)at

we are 0mericans.1

-Senator Robert Kennedy, 1968


37/45


GDP Does 6ot Lalue

the qualit" of the en&ironment leisure time

non#market acti&it", such as the child care

a parent pro&ides at home an equita$le distri$ution of income


38/45

3! 2015 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in hole or in part, e!cept "or use asper#itted in a license distributed ith a certain product or service or otherise on a passord$protected ebsite "or classroo# use.

hen Wh" Do We -are 9$out GDP?

Ha&in! a lar!e GDP ena$les a countr" to afford$etter schools, a cleaner en&ironment,health care, etc.

%an" indicators of the qualit" of life are

positi&el" correlated with GDP' .or e+ample5

GDP d 1if * t i =; t i


39/45

3" 2015 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in hole or in part, e!cept "or use asper#itted in a license distributed ith a certain product or service or otherise on a passord$protected ebsite "or classroo# use.

E< E=


40/45

4$ 2015 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in hole or in part, e!cept "or use asper#itted in a license distributed ith a certain product or service or otherise on a passord$protected ebsite "or classroo# use.

GDP and 9&era!e 2choolin! in =; countries

Documents

Aplia PROD SRVMaterialstnvu7 0001 10