Copyright © 2008 Pearson Addison-Wesley. All rights reserved. Chapter 2 Measurement.
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Transcript of Copyright © 2008 Pearson Addison-Wesley. All rights reserved. Chapter 2 Measurement.
Copyright © 2008 Pearson Addison-Wesley. All rights reserved. 2-2
Chapter 2 Topics
• Measuring GDP
• Nominal and real GDP and price indices
• Labor market measurement
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GDP
• The dollar value of final outputs produced during a given period of time within the borders of a country.
• Example: published in the National Income and Product Accounts (NIPA) in U.S.
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Measuring GDP: The National Income and Product Accounts
• GDP Measured Using: (i) the product approach; (ii) the expenditure approach; (iii) the income approach.
• Three approaches yield the same value of GDP.
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National Income Accounting Example
• Fictional Island Economy
• Coconut Producer, Restaurant, Consumers, Government
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Measuring GDP Using the Product (Value-added) Approach
• Sum of value added to goods and service in production across all productive units in economy.
• Add the value of all goods and service, and subtract the value of all intermediate goods and service used in production.
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Table 2.6 GDP Using the Product Approach
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Expenditure Approach
• Total spending on all final goods and service in economy.
• Total expenditure = C + I + G + NX
I: expenditure on goods that are produced, but not consumed as consumption goods. For example, machinery in plants.
NX=Exports – Imports. Exports are produced within a country, while imports are produced abroad.
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Table 2.7 GDP Using the Expenditure Approach
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Income Approach
• Add up all incomes received by all economic agents contributing to production in an economy.
• Income includes:– Wage incomes– Interest incomes– Corporate incomes (profits)– Taxes net of subsidies on products or factors of
production
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Table 2.8 GDP Using the Income Approach
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Inventory Investment
• Def: goods produced in the current period, but not consumed.
• Components:– Finished goods– Goods in process– Raw materials.
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Inventory Investment
• Back to coconut economy:– If harvest 13M instead of 10M coconuts, and put 3M
in warehouse as inventory, how is GDP affected?– Product approach: 3M*2 – value added in coconut
production.– Expenditure approach: I = 3M*2– Income approach: 3M*2 - after-tax profits received
by coconut producers increase since assets rise.
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GNP (gross national product)
• The value of outputs produced by domestic factors of production, no matter whether or not the production takes place within a country.
• Difference from GDP:– Within a country for GDP, no matter who owns the
production unit.– Chinese plants in the U.S. (GNP, not GDP)– American plants in China (not GNP, GDP)
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Nominal and Real GDP and Price Indices
• Price index: price of a set of goods and service produced in an economy over a period of time. A general measure of price level.
• Inflation rate: the rate of change in the price level.
• Growth in nominal GDP = Growth in real GDP + Inflation
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Table 2.10 Data for Real GDP Example
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Chain-Weighting Approach
• Use rolling base year.
• g3= sqrt ( (1+g1)(1+g2) ) - 1
– A geometric average of the growth rates calculated by using year 1 and year 2 as base year.
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Figure 2.1 Nominal GDP (black line) and Chain-Weighted Real GDP (colored line) for the Period 1947–2006
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Table 2.11 Implicit GDP Price Deflators, Example
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Figure 2.2 Inflation Rate Calculated from the CPI (blue line), and Calculated from the Implicit GDP Price Deflator (black line)