Measuring Domestic Output and
National Income
Chapter 12
Assessing Economy’s GDP at Factor, Basic &
Performance Market Prices
National Income Accounting
Gross value added @ factor cost (linked 2 Income approach)
Techns used measure overall
production of eco & oth related Plus other taxes on Less other subsidies on
variables 4 nation as whole. production production
Economy’s aggregate performance
analogous 2 private accounting 4 indivs.
Allows economists & policy makers 2: Gross value added @ basic prices
▪ Assess health of eco by comparing
Plus taxes on products Less subsidies on products
levels of production @ regular
intervals.
▪ Track long-run course of eco 2 see
whether grown, been constant, Gross Domestic Product at market prices (linked to the
declined. Expenditure approach)
▪ Formulate policies will safeguard &
improve eco’s health.
GDP vs GNI Taxes & Subsidies on
Gross Domestic Product (GDP)
Production
Taxes on Production
Total market value of all final g/s
Refers 2 tax on production not linked
produced in given yr w/i borders of
2 specific g/s.
country.
Eg Propery tax, UIF, sales tax.
Citizen-supplied/foreign-supplied
Why add 1 wages, rent, interest &
rescs employed w/i country.
profits? - acc convenience.
Gross National Income (GNI) Subsidies on Production
Subsidies paid 2 buss 2 subsidize
Total market value of all final g/s
production of particular commodity 2
produced in given yr by residents/
allow manufacturers 2 sell @ lower
registered buss from particular
price. (normally necessities.)
country anywhere in world.
Why add 2 wages, rent, interest &
Ownership-based.
profits? - acc convenience!
Also what = earned abroad &
repatriated by residents.
, Taxes on Products
Taxes on Products
Taxes payable per unit of some g/s.
Eg VAT, excise taxes, buss property
taxes, license fees, custom duties
(import & export duties)
E.g. sin taxes on alcohol/cigarettes.
Propose export tax on scrap metal.
Gross Domestic Product
(GDP)
Monetary measure.
Only count final goods.
Double counting: Expenditure Approach
▪ Most prods go thro series of
Personal Consumption Expenditures
production stages b4 reach market.
(C)
▪ GDP incls only final goods; excludes
Durable cons goods, e.g. refrigerators.
intermediate goods (products
Non-durable cons goods - groceries.
purchased 4 resale/further
Cons expenditures 4 services - docs.
processing/manufacturing.).
Gross Private Domestic Investment
▪ Value added measurement.
(I)
Excludes non-production transactions,
Expenditures 4 newly produced capital
e.g. financial transactions (public/
goods & additions 2 inventories.
private transfer payments & stock
▪ Machinery, equip & tools.
market transactions) & 2nd-hand sales.
▪ All construction.
Two Approaches to GDP ▪ Changes in inventories (unconsumed
Income approach Expenditure & output).
(earnings/ value-added ▪ Non-investment transactions.
allocations (production) Net Private Domestic Investment:
approach) approach Gross private domestic investment
less consumption of fixed capital;
Wages/rental Final-product/
addition 2 nation’s stock of capital
incomes. value-added.
during yr.
Interest income / Concerns sum of o Gross Investment – Depreciation =
profits. money spent 2 Net investment.
purchase output.
Concerns income
derived/created
from production.
National Income
Chapter 12
Assessing Economy’s GDP at Factor, Basic &
Performance Market Prices
National Income Accounting
Gross value added @ factor cost (linked 2 Income approach)
Techns used measure overall
production of eco & oth related Plus other taxes on Less other subsidies on
variables 4 nation as whole. production production
Economy’s aggregate performance
analogous 2 private accounting 4 indivs.
Allows economists & policy makers 2: Gross value added @ basic prices
▪ Assess health of eco by comparing
Plus taxes on products Less subsidies on products
levels of production @ regular
intervals.
▪ Track long-run course of eco 2 see
whether grown, been constant, Gross Domestic Product at market prices (linked to the
declined. Expenditure approach)
▪ Formulate policies will safeguard &
improve eco’s health.
GDP vs GNI Taxes & Subsidies on
Gross Domestic Product (GDP)
Production
Taxes on Production
Total market value of all final g/s
Refers 2 tax on production not linked
produced in given yr w/i borders of
2 specific g/s.
country.
Eg Propery tax, UIF, sales tax.
Citizen-supplied/foreign-supplied
Why add 1 wages, rent, interest &
rescs employed w/i country.
profits? - acc convenience.
Gross National Income (GNI) Subsidies on Production
Subsidies paid 2 buss 2 subsidize
Total market value of all final g/s
production of particular commodity 2
produced in given yr by residents/
allow manufacturers 2 sell @ lower
registered buss from particular
price. (normally necessities.)
country anywhere in world.
Why add 2 wages, rent, interest &
Ownership-based.
profits? - acc convenience!
Also what = earned abroad &
repatriated by residents.
, Taxes on Products
Taxes on Products
Taxes payable per unit of some g/s.
Eg VAT, excise taxes, buss property
taxes, license fees, custom duties
(import & export duties)
E.g. sin taxes on alcohol/cigarettes.
Propose export tax on scrap metal.
Gross Domestic Product
(GDP)
Monetary measure.
Only count final goods.
Double counting: Expenditure Approach
▪ Most prods go thro series of
Personal Consumption Expenditures
production stages b4 reach market.
(C)
▪ GDP incls only final goods; excludes
Durable cons goods, e.g. refrigerators.
intermediate goods (products
Non-durable cons goods - groceries.
purchased 4 resale/further
Cons expenditures 4 services - docs.
processing/manufacturing.).
Gross Private Domestic Investment
▪ Value added measurement.
(I)
Excludes non-production transactions,
Expenditures 4 newly produced capital
e.g. financial transactions (public/
goods & additions 2 inventories.
private transfer payments & stock
▪ Machinery, equip & tools.
market transactions) & 2nd-hand sales.
▪ All construction.
Two Approaches to GDP ▪ Changes in inventories (unconsumed
Income approach Expenditure & output).
(earnings/ value-added ▪ Non-investment transactions.
allocations (production) Net Private Domestic Investment:
approach) approach Gross private domestic investment
less consumption of fixed capital;
Wages/rental Final-product/
addition 2 nation’s stock of capital
incomes. value-added.
during yr.
Interest income / Concerns sum of o Gross Investment – Depreciation =
profits. money spent 2 Net investment.
purchase output.
Concerns income
derived/created
from production.
