GDP AT FACTOR COST, BASIC + MARKET PRICES
CHAPTER 12 • three types of GDP:
measuring domestic output and national income o GDP at factor cost:
§ + Other taxes on production
ASSESSING THE ECONOMY’S PERFORMANCE § - Other subsidies on
• national income accounting: measures production
economy’s overall performance o GDP at basic prices:
§ + Taxes on products
• StatsSa compiles National Accounts for SA
§ - Subsidies on products
• The South African Reserve Bank is also a
o GDP at market prices
reliable source of this economic data
• this accounting enables economies and
policymakers to: TAXES AND SUBSIDIES ON PRODUCTION
o assess health of economy by • taxes on production and imports include
comparing levels of production at general sales taxes, excise taxes, business
regular intervals property taxes license fees, custom duties
o track long-run course of economy to • subsidies on production includes subsidies
see whether it has grown, been paid to businesses in order to subsidize
constant or declined production of particular commodity
o formulate policies that will safeguard
and improve economy’s health GDP, A MONETARY MEASURE
• without such measure we won’t have way of
GROSS DOMESTIC PRODUCT VERSUS comparing relative values of vast number of
GROSS NATIONAL INCOME goods & services produced in different years
• primary measure of economy’s performance
® gross domestic product (GDP) VALUE ADDED
• gross domestic product (GDP): the total • only value of final product is added to GDP
market value of all final goods and services
produced in given year within the borders of
AVOID DOUBLE COUNTING
the country
• to measure aggregate output accurately,
o includes motors produced by German-
goods and services produced in particular
owned factory in Cape Town
year must be counted once and only once
• related measure is the gross national income
• GDP includes only market value of final goods
(GNI)
and ignores intermediate goods altogether
• gross national income (GNI): the total market
• intermediate goods: goods & services that are
value of all final goods and services produced
purchased for resale, further processing or
in given year by residents/registered
manufacturing
businesses from particular country anywhere
in the world • final goods: goods & services that are
o ownership based purchased for final use by consumer, not
o value-added attributable to all resale, further processing or manufacturing
factors of production owned by
country’s residents, regardless of GDP EXCL. NON-PRODUCTION TRANSACTIONS
where those factors are actually • non-production transactions must be
employed excluded from GDP because they have
o includes South African living and nothing to do with generation of final goods
working in London
1
CHAPTER 12 • three types of GDP:
measuring domestic output and national income o GDP at factor cost:
§ + Other taxes on production
ASSESSING THE ECONOMY’S PERFORMANCE § - Other subsidies on
• national income accounting: measures production
economy’s overall performance o GDP at basic prices:
§ + Taxes on products
• StatsSa compiles National Accounts for SA
§ - Subsidies on products
• The South African Reserve Bank is also a
o GDP at market prices
reliable source of this economic data
• this accounting enables economies and
policymakers to: TAXES AND SUBSIDIES ON PRODUCTION
o assess health of economy by • taxes on production and imports include
comparing levels of production at general sales taxes, excise taxes, business
regular intervals property taxes license fees, custom duties
o track long-run course of economy to • subsidies on production includes subsidies
see whether it has grown, been paid to businesses in order to subsidize
constant or declined production of particular commodity
o formulate policies that will safeguard
and improve economy’s health GDP, A MONETARY MEASURE
• without such measure we won’t have way of
GROSS DOMESTIC PRODUCT VERSUS comparing relative values of vast number of
GROSS NATIONAL INCOME goods & services produced in different years
• primary measure of economy’s performance
® gross domestic product (GDP) VALUE ADDED
• gross domestic product (GDP): the total • only value of final product is added to GDP
market value of all final goods and services
produced in given year within the borders of
AVOID DOUBLE COUNTING
the country
• to measure aggregate output accurately,
o includes motors produced by German-
goods and services produced in particular
owned factory in Cape Town
year must be counted once and only once
• related measure is the gross national income
• GDP includes only market value of final goods
(GNI)
and ignores intermediate goods altogether
• gross national income (GNI): the total market
• intermediate goods: goods & services that are
value of all final goods and services produced
purchased for resale, further processing or
in given year by residents/registered
manufacturing
businesses from particular country anywhere
in the world • final goods: goods & services that are
o ownership based purchased for final use by consumer, not
o value-added attributable to all resale, further processing or manufacturing
factors of production owned by
country’s residents, regardless of GDP EXCL. NON-PRODUCTION TRANSACTIONS
where those factors are actually • non-production transactions must be
employed excluded from GDP because they have
o includes South African living and nothing to do with generation of final goods
working in London
1
