Economic Notes — Chapter 14

Topic 41 – Measuring a Nation’s Output 



Gross Domestic Product is the dollar value of all
	1  final goods,
	2.  services, and 
	3.  structures
produced in a county's national borders in a year.

Things to keep in mind when examining the GDP:
	1.	The GDP is only (for the most part) an estimation.
	2.	Sales of used products not used in calculating  GDP, only original sales.
	3.	Typically 6 months behind the  economy.  Time to compute the GDP
	4.	The GDP also does not include personal services
		such as mowing lawn or taking care of children.
	5.	Illegal activities such as gambling, smuggling, prostitution, drugs, and
		 counterfeiting are not be tabulated in the GDP.

Why is the GDP so important?  Because all economists agree that it is a useful tool in
measuring an economies performance and general health.
Topic 42 – Measuring a Nation’s Income. 



The GDP is includes and excludes certain types of income.  It includes foreign owned
goods produced in the US, but excludes income earned by US holding in other countries.

Five measures to a nation’s income: (5)

1.	Gross National Product (GNP) is the largest measure it calculates all of the goods,
	 services and structures (same as GDP) plus US holding’s in foreign countries,
	minus foreign-owned company who produces goods in the US
2.	Net National Product (NNP) is the second largest measure, basically it’s the GNP
	minus Capital consumption allowances which is the depreciation of capital goods
	that takes place due to production.
3.	National Income (NI) is the same measure as NNT but it does include taxes paid.
	The exceptions are corporate profit taxes like excise taxes, property taxes, etc.…
4.	Personal Income (PI) is the total amount of income going the consumer before\
	individual taxes are subtracted
5.	Disposable Personal Income (DI) is the smallest and easiest to explain.  It
	calculates the total amount of money which consumers can spend.

Four main sectors of the national economy: (4)

1.	Consumer Sector is made up of individuals, they receive their income. DI.
2.	Investment Sector is made up of proprietorships, partnerships, and corporations.
3.	Government Sector is made up of ;  federal, state, and local government.
4.	Foreign Sector includes all consumers and producers outside the US

The easiest way to see the difference between the different measure of an economy is to
look at an Output-Expenditure Model
Section 43 – GDP and Changes in the Price Level. 


Price Indices are constructed for a number of different purposes.  They can measure the
change in price of a single item such as toothpaste or the change in price of groups of
items such as foreign goods.

There are three major price indices: (3)

1.	Consumer Price Index reports the change in price of over 90,000 items in 364
	 categories.  It is compiled monthly by the Bureau of Labor Statistics.
2.	Producer Price Index measures the price changes received by domestic producers
	 for their output.
3.	Implicit Price Deflator measures price change in the GDP.  Is generally used 
	to measure inflation.

One problem when studying the GDP, due to inflation, is comparing it to past years and
predicting the future.  The easiest way to due this is use this formula.

(GDP  ÷ implicit GDP price deflator) * 100 = GDP in real dollars