MEASURING THE NATION’S OUTPUT
Chapter 12
GROSS DOMESTIC PRODUCT (GDP)
The total dollar value of all final goods and services
produced by resources located in the United States
(regardless of who owns them) during one year’s
time.
The single most important measurement of the economy’s
overall performance.
National Income Accounting – is a system of statistics and
accounts that keep track of production,
consumption, savings and investment
to keep track overall economic
performance.
COMPUTING GDP
Conceptually, you
simply multiply all
the final goods &
services produced
in a year by their
prices.
Goods
Services
Structures
CONSUMER GOODS
Goods
Products purchased for final consumption
Services
Items consumed instantaneously
Structures (Investment Goods)
Single Family
Multifamily
Commercial
THINGS THAT ARE EXCLUDED
Intermediate Products – pieces of an item i.e. a bottle-
label-cap-juice-box, etc.
Nonmarket Transactions – items that are not paid for
such as barter or unpaid household duties.
Secondhand Sales - items that have already been
counted.
Underground Economy – economic activities that are
not reported for legal or tax purposes.
COMPOSITION OF GDP
Consumer Goods - items made for final consumption
Investment Goods - increase in productive (physical) capital
The Government Sector - purchases by government
Foreign Sector – imports minus exports
GDP = Personal Consumption + Investments + Government Purchases - Foreign Transactions
GROSS NATIONAL PRODUCT – GNP
THE MEASURE OF NATIONAL INCOME
The dollar value of all final goods, services, and
structures produced in one year with labor,
and property supplied by a country’s residents.
This can best be summarized
as the nations income.
THE FIVE INCOME MEASURERS
GNP – dollar value produced by US citizens &
corporations
NNP – which is GNP less depreciation
Depreciation represents the capital equipment that
has worn out or become obsolete over the year.
National Income – income left over after all
taxed have been taken out.
THE FIVE INCOME MEASURERS (CONTINUED)
Personal Income – the total amount of the
nation’s income going to consumers before
individual income taxes are subtracted.
Disposal Personal Income – the total income
the consumer sector has at its disposal after
personal income taxes.
Disposable Income is the
amount of money that
consumers have to spend.
C+G+I+(X - M) = GDP CONSUMER SECTOR
The Consumer Sector or households account
for nearly 2/3 of the economy. The Consumer
Sector receives its income from disposal
personal income (after taxes).
Households are particularly useful because they
can de a determinant of the purchase of durable
goods.
CONSUMER GOODS
- ITEMS MADE FOR FINAL CONSUMPTION
Durable Goods - last for 3yrs or more
Nondurable Goods - short term goods
Services - consumed instantly
C+G+I+(X - M) = GDP THE GOVERNMENT SECTOR
- PURCHASES BY GOVERNMENT
Federal Government
State Government
Local Government
The Government sector receives its income
from taxes.
The Government Sector accounts for
approximately 33% or 1/3 of GDP
C+G+I+(X - M) = GDP THE INVESTMENT SECTOR
Proprietorships, partnerships, and corporations
are responsible for bringing the factors of
production together to produce output.
New Plants and Equipment - can be used for further
production
Private Housing - can be used for an
Indefinite period of time
Inventories - the difference between
consumption and production
INVENTORY MODEL
Completed but not yet consumed moves into
inventory.
Inventory is an Investment good
Once sold it becomes a consumer good and
must be removed from Inventory
Consumption (+/-) Inventory = GDP
THE FOREIGN SECTOR OR
THE BALANCE OF TRADE
This sector represents the difference
between the dollar value of goods sent
abroad and the dollar value of goods
purchased from abroad.
C+G+I+(X - M) = GDP
SECTION II
POPULATION & ECONOMIC GROWTH
Every ten years the U.S. counts its population which is
known as the census. The population is counted in a
way that gives more than a count; Income data, place
of residence, education levels and more
Urban vs. rural population, age & gender, race and
ethnicity ate all used to project economic and
population growth.
GDP & POPULATION
As population expands so must GDP. The three
factors that influence population growth are:
Fertility Rate – the number of births per female
(approximately 2.11)
Life Expectancy – the average remaining life span
who reach a certain age (approximately 75.9 yrs)
Net Immigration – the difference between those
entering and leaving the country
(approximately .9%)
CHANGES IN DEMOGRAPHICS
1990
White – 75.7%
Hispanic – 11.8%
African American – 11.8%
Asian – 2.8%
Native American - 0.7%
2050 (Estimate)
White – 52.7%
Hispanic – 21.1%
African American – 15%
Asian – 10.1%
Native American – 1.1%
ECONOMIC GROWTH
Measuring Growth – Because population grows you
need to account for a growing population. Real GDP
divided by the population will give you real GDP per
capita which is the best way to compare GDP to
previous years as well as other countries.
SECTION III
PROVERTY & THE DISTRIBUTION OF INCOME
People are classified as living in
poverty if their incomes fall below a
predetermined level, or threshold.
In 2009, for example, a family of
four earning 22,050 or less was
determined to live in poverty.
Living in poverty triggers
governmental support for welfare
programs like food stamps, Head
Start, and other public assistance
programs.
POVERTY
Families and individuals are defined as living in
poverty if their incomes fall below certain
levels.
OTHER ANTI-POVERTY PROGRAMS
Over the years, the federal government
has instituted a number of programs to
help the needy. Most come under the
general heading of welfare.
Income Assistance – (TANF) Temporary
Assistance for Needy Families (1997),
(SSI), Supplemental Security Income
General Assistance – Food Stamps, WIC
Tax Credits – Earned Income Tax Credit
(1975)
DISTRIBUTION OF INCOME
UNDERSTANDING THE LORENZ CURVE
The Lorenz Curve
shows how much the
actual income varies
from and equal
distribution of income
based on households
REASONS FOR INCOME INEQUALITY
Income is never distributed equally
among households. There are a number
of reasons that can be used to explain
why.
Education – normally those with higher
education have higher incomes
Wealth – normally accumulated by past
family generations can be used to create
more wealth. This allows wealth to stay in
the hands of a small percentage of the
population.
INCOME DISTRIBUTION (CONTINUED)
Discrimination – many times women and minorities are
not promoted or kept out of certain professions.
Ability – some individuals have unique talents that
allow them to earn more income. (i.e. professional
athletes)
Monopoly Power – professional groups
like the AMA or Pilots Associations can
demand and receive higher incomes.
Loss of Manufacturing - service jobs now
dominate job creation and service jobs
normally pay less than manufacturing jobs.
INCOME DISTRIBUTION (CONTINUED)
Changing Family Structure – the dramatic shift from
two parent families to a one parent family changes the
family income structure.
Wealth itself – the ability of wealthy families to send
their children to colleges and universities (better
educate)helps the wealthy stay wealthy.