...CHAPTER 23 Measuring a Nation’s Income Economics PRINCIPLES OF N. Gregory Mankiw Premium PowerPoint Slides by Ron Cronovich © 2009 South-Western, a part of Cengage Learning, all rights reserved In this chapter, look for the answers to these questions: What is Gross Domestic Product (GDP)? How is GDP related to a nation’s total income and spending? What are the components of GDP? How is GDP corrected for inflation? Does GDP measure society’s well-being? 1 Micro vs. Macro Microeconomics: The study of how individual households and firms make decisions, interact with one another in markets. Macroeconomics: The study of the economy as a whole. We begin our study of macroeconomics with the country’s total income and expenditure. MEASURING A NATION’S INCOME 2 Income and Expenditure Gross Domestic Product (GDP) measures total income of everyone in the economy. GDP also measures total expenditure on the economy’s output of g&s. For the economy as a whole, income equals expenditure because every dollar a buyer spends is a dollar of income for the seller. MEASURING A NATION’S INCOME 3 The Circular-Flow Diagram a simple depiction of the macroeconomy illustrates GDP as spending, revenue, factor payments, and income Preliminaries: Factors of production are inputs like labor, land, capital, and natural resources. Factor payments are payments to the factors of production...
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...I discussed the GDP in my first post and decided to post a response to this one too; the .U.S. Department of Commerce released fourth quarter real gross domestic product rates of 2014. According to the Bureau of Economic Analysis (2015), the value of produced goods and services in the U.S. increased 2.2 during this quarter (para. 1). This means that the production of goods adjusted for price changes for the period when the second estimate was released on February 27th. That is a 2.8 percent drop from 5.0 percent third quarter GDP results of 2014 (U.S. DOC, 2015, para. 1). As previously stated GDP measures the economy performance of the nation or country during a certain period of time (annual or quarterly). GDP measured in terms of dollars regard the total of all goods and services produced (McConnell, Brue, & Flynn, 2015); unfortunately, there are several shortcomings or limitations in measuring the total output or national welfare. The shortcomings of GDP measure both total output and total utility (McConnell, et al., 2015, p. 561); the total output shortcomings include non market activities (household production) such as homemaker services and parental childcare (Lee, n. d.; Toward, 2010). Non market activities are products and services that are produce by people and are not bought and sold on the market. Legal economic and illegal activities are underground activities, the second type of shortcoming of GDP. Underground activities consist of products or services purchased...
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...Sustainability Alternate measure for Economic Performance Jayant Kumar Preface An indicator is something that helps one to understand inclusive position, the path and how far one is from the point they want to be. A good indicator gives the alert about the problem before it gets too bad and helps to recognize things to do in-order to fix it. Indicators of sustainable community point to areas where the links between the economy, environment and society are weak. It allows one to identify the problematic area and helps the ways to fix restore it. GDP and profit currently dominate society’s discussions of economic performance. They shape the way people think about the economy and business, affecting their behavior and the actual outcomes of economic activity. So what is economic success? Going beyond GDP and profit will explore what we mean by economic success, the role that GDP and profit play in this, and the potential for broader measures of economic success to help us balance our economic priorities, our social goals, and the constraints imposed on us by the natural environment we live in. 1 Current measure of Performance Right measurement is a powerful instrument for social progress; wrong or imprecise measurement a source of hazard and even havoc. Two main measure of economic success are currently are GDP at the national level and profit at the Organizational level. GDP is the value added measure that is broader than Profit. GDP and profit are contested concepts that...
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...Chapter 20 measuring gdp and economic growth Gross Domestic Product (pp. 466-470) * GDP, or gross domestic product, is the market value of all the final goods and services produced in a country during a given period. * A final good is an item that is bought by its final user during a specified time period, and contrasts with an intermediate good, which is a component of a final good. * GDP is calculated by using the expenditure and income totals in the circular flow of expenditure and income. * Aggregate expenditure on goods and services equals aggregate income and GDP. Measuring Canada's GDP (pp. 471-472) * Because aggregate expenditure, aggregate income, and the value of aggregate production are equal, we can measure GDP by using the expenditure approach or the income approach. * The expenditure approach sums consumption expenditure, investment, government expenditures on goods and services, and net exports. * The income approach sums wages, interest, rent, and profit (and indirect taxes and depreciation). Real GDP and the Price Level (pp. 473-475) * Real GDP is measured by a chain-weighted output index that compares the value of production each year with its value at the previous year's prices. * The GDP deflator measures the price level based on the prices of the items that make up GDP. Measuring Economic Growth (pp. 476-479) * We measure the economic growth rate as the percentage change in real GDP. * Real GDP growth...
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...Chapter 4 Measuring GDP and Economic Growth 1 Gross Domestic Product 1) Gross domestic product is the total ________ produced within a country in a given time period. A) market value of all final and intermediate goods and services B) market value of all goods and services C) amount of final and intermediate goods and services D) market value of all final goods and services Answer: D Topic: GDP Skill: Recognition Question history: Previous edition, Chapter 4 AACSB: Reflective Thinking 2) Gross domestic product A) includes all the goods and none of the services produced in an economy in a given time period. B) measures the value of the aggregate production of goods and services in a country during a given time period. C) measures the value of labor payments generated in an economy in a given time period. D) is generally less than federal expenditure in any time period. Answer: B Topic: GDP Skill: Recognition Question history: Previous edition, Chapter 4 AACSB: Reflective Thinking 3) Gross domestic product is a measure of the total value of all A) sales in an economy over a period of time. B) consumer income in an economy over a period of time. C) capital accumulation in an economy over a period of time. D) final goods and services produced in an economy over a period of time. Answer: D Topic: GDP Skill: Recognition Question history: Previous edition, Chapter 4 AACSB: Reflective Thinking Copyright © 2012 Pearson Education, Inc. Chapter 4 Measuring GDP and Economic Growth 493 ...
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...forecasts of GDP. What exactly is GDP? How do we use GDP to tell us whether our economy is in a recession or how rapidly our economy is expanding? How do we take the effects of inflation out of GDP to reveal the growth rate of our economic well-being? And how to we compare economic well-being across countries? © 2010 Pearson Education Canada Gross Domestic Product GDP Defined GDP or gross domestic product is the market value of all final goods and services produced in a country in a given time period. This definition has four parts: Market value Final goods and services Produced within a country In a given time period © 2010 Pearson Education Canada Gross Domestic Product Market Value GDP is a market value—goods and services are valued at their market prices. To add apples and oranges, computers and popcorn, we add the market values so we have a total value of output in dollars. © 2010 Pearson Education Canada Gross Domestic Product Final Goods and Services GDP is the value of the final goods and services produced. A final good (or service) is an item bought by its final user during a specified time period. A final good contrasts with an intermediate good, which is an item that is produced by one firm, bought by another firm, and used as a component of a final good or service. Excluding intermediate goods and services avoids double counting. © 2010 Pearson Education Canada Gross Domestic Product Produced Within a Country GDP measures...
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...IMPLICATIONS OF MEASURING DEVELOPMENT AS GROWTH Development is a complex issue with many different and sometimes contentious definitions. More often than not, development is measured as economic growth. Economic growth basically explores the increase in the productive capacity of any state. This upward change in productive capacity is usually ascertained in terms of Gross Domestic Product as well as Gross National Product. The former takes a look at the total final output of goods and services produced in a year and the latter is a measure of income earned by both domestic and non-resident citizens. Sad it is to know, that the popularly used measure of development; economic growth, does not give a detailed view of the economic atmosphere of any nation. Using growth as a measure of development does not tell us much about the actual state of the economy. Development goes beyond the mere knowledge of certain economic indices. It is concerned with structural changes that go a long way to improving the conditions of living of all and sundry. One implication of measuring development as growth is the neglect of the level of income distribution in the economy. In spite of the positive changes in the levels of economic growth over accounting periods, is there really an equitable income distribution? Are there few poor people? Economic growth indices such as GNP and GDP merely show the overall income of the state but fail to reveal how much each person in the economy...
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...researchers, they all bring about to the same meaning and understanding. Based on my understanding, measurement is the process of observing, recording and calculating the observations that are collected as part of a research effort which is usually represented by units. These units possess values and are often numerical. Importance Everyone uses measurement without even noticing it sometimes. In studying measurement theory, I realised that measurement involve in many of our daily activities without us even noticing it sometimes. Some examples include measuring our heights and weights, measuring the nearest and shortest distance to get to class, measuring the time taken to complete an assignment and many more. Therefore, it can be said that measurement theory is definitely important and useful for everyone. Understanding the importance of measurement theory is crucial to address issues in business, accounting, social and economics. Importance of measurement in Accounting Why is measurement theory important? Well, it is important for three simple reasons. It is important to make decisions, assess performance and positions and make comparisons. Let’s look at accounting perspective first. In accounting, almost everything is being measured which includes expenses, revenues, assets, liabilities and profits. Accountants use measurements to report information to internal and external users via financial statements. Financial accounting measurements are typically recorded at historical...
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...Running Head: Measuring Economic Activity Kim Adley ECO 201 – 1003A – 03 Macroeconomics Phase 2 Individual Project Measuring Economic Activity Professor M. Antokas July 26, 2010 Recently, a debate came about a debate as to whether or not I have a strong understanding of what Gross Domestic Product (GDP), unemployment, and inflation. The other part of the debate was whether or not these three issues should be discussed separately, or should GDP, unemployment, and inflation be discussed as if they were interconnected, have a relationship between one another. In my opinion, all three are related to each other, and so, should be discussed as if all three were related. One cannot discuss GDP, unemployment, and inflation, without discussing economic indicators. Economic indicators are those tools used as predictors of the health of the economy. There are three types of economic indicators: lagging, leading, and coincidental. Lagging indicators focuses on how the economy functioned in the past, leading indictors is used to predict how the economy may act in the future, and coincidental indicators looks at how the economy is performing in the present (Peavler, 2010). GDP is the measuring of all goods and services that are produced within the United States for a period of one year, equivalent to the sum of consumer spending, investment spending, and government spending, adding the worth of exports (Samuleson & Nordhaus, 2010). Some good examples to look at would be...
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...Q. How is GDP measured and what are its limitations as a measure of the quality of life? A. Gross Domestic Product (GDP) can be defined as the annual value of output produced by factors of production within a nation’s border. In other words, it is the sum of all incomes earned by the country’s residents when producing goods and services with resources located inside that country. GDP is not to be confused with Gross National Product (GNP), which measures the flow of output produced with resources, which are owned by the nation wherever they might be located. The difference between GDP and GNP is net property income from abroad. The word “gross” in both of these measures of national income, indicates that no account has been taken of depreciation. There are 3 methods of calculating GDP: the product/output method, the income method and the expenditure method. In theory, because they all claim to measure the same aggregate, they should all give the same total. This is shown below in the circular flow of income: However, in practice, this is unlikely to be the case. This is because extremely large sums arising out of millions of transactions paid over different time periods are being dealt with and it would therefore be very unlikely if all 3 measures coincided. The first way of measuring GDP is to add up annually all the value of the goods and services produced in the country, industry by industry. This is known as the output or product...
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...Measuring Economic Health Memo Christina Roddey ECO/212 June 13, 2011 Luis Torres Introduction When it comes to measuring economic health, there are important things to remember. Gross Domestic Product (GDP) is primary used to measure the economy’s health. Fiscal policies are organized by the government to figure out what caused the unhealthy changes in the economy. The Use of Gross Domestic Product Gross Domestic Product (GDP) is a measure of the gross national output; it’s a cumulative of all the consumption of the all the consumption of the all households in an economy. The consumption or spending by the government into different economic welfare activities such as education, healthcare, welfare and military, private domestic investments in way of new projects and buying capital goods and a net current account balances. The business cycle is the growing and shrinking of the economy. When measuring a business cycle, it changes in real GDP which focus on the changes in output. There are four parts of the business cycle which are – peak, contraction, trough, and expansion. Information has to be collected after a certain time frame is completed, in which, the business cycles are next translated between the changing periods of economic recession or economic expansion. Roles of Government Bodies National fiscal policies are arranged by the President and Congress. They have steps that helps determine the policies. First, the U.S. Government Accountability...
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...Measuring Economic Health Kim Kardashian ECO/212 August 9, 2011 Edward Vargas Measuring Economic Health The gross domestic product, or GDP, “is the market value of all final goods and services produced in a country during a period of time, typically one year” (Hubbard & O’Brien, 2010, p. 615). Generally, GDP is the measure of market values and not quantities. Moreover, the GDP can be an indicator for the general economic health of a country. Typically, if the GDP rises the country is in good economic health; however, if the GDP declines, the country may be gravitating toward recession, or is in recession. The business cycle consists of the expansion and recession periods. “The business cycle expansion is a period during which total production and total employment are increasing” (Hubbard & O’Brien, 2010, p. 614). On the opposing side of the business cycle is the recession. The business cycle recession is a period when the total production and employment is decreasing. The interrelation of fiscal policies, production, and employment are important to the economy. “A fiscal policy is the changes in the federal taxes and purchases that are intended to achieve macroeconomic policy objectives” (Hubbard & O’Brien, 2010, p. 900). Congress, and the president can attempt to stabilize the economy by using fiscal policy to affect the price level and the level of real GDP. However, in practice it is extremely difficult for Congress and the president to use...
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...Measuring Economic Health Memo ECO/212 As you may already know, GDP stands for Gross Domestic Product. GDP refers to the market value of all final goods and services produced in a country during a period of time, usually one year. When someone refers to the business cycle, he or she is referring to the alternating periods of expansion and recession of the economy. GDP is the most significant method used to gauge the state of the economy measuring total production and total income. When GDP is measured, a dollar amount of all goods and services is calculated to eliminate confusion. If the quantity of all goods and services were just measured, then the result would misinterpret the findings. GDP is an important tool to analyze total income a household or firm spends on particular items, giving insight into the state of the economy. By measuring GDP, the government can examine where money goes; is it being deposited, is the money being spent on taxes, or is it being invested into stocks and bonds. The flow of money from households into the financial system make it possible for firms to borrow, which is crucial to any economy. GDP measures the business cycle as well as it can, but cannot be the only determining factor; inflation and unemployment play vital roles as well. The term Fiscal Policy refers to changes in federal taxes and purchases that are intended to achieve macroeconomic objectives. Fiscal Policy is the government’s way of offsetting times of instability in the business...
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...most often synonymous with the progression and growth from lower economic status to that which is advanced it be of a community or country such that its productivity noticeably increases. Many scholars as such agree that growth in economic proficiency as is brought about by economic growth is a yardstick for development. It is on this particular premise that this paper shall endeavour to describe economic growth and further elaborate why it is considered a crucial element in defining development. In this light, the paper shall also attempt to highlight and explain the limitations of this approach in measuring development. Economic Growth- Defined As suggested above, economic growth is a factor in achieving development. An accurate description according to the IMF (2012) is that economic growth is a process that involves the increase in the amount of the goods and services produced by an economy over time which is conventionally measured as the percentage rate of increase in Gross Domestic Product (GDP). GDP is the What this approach therefore depicts is that for development to be considered to have taken place, there should be an increase in the capability of an economy to produce goods and services, as compared from one period of time to another. This increase must be measurable with respect to the productive output of each sector of the economy. In relation to this, Todaro and Smith (2011) state that economic growth has three essential components, namely: • Capital...
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...840615055270001 Question 1 (a) Cost of living- Price of goods and services required for maintaining an average level standard of living. Cost of living varies from place to place, and from time to time. Standard of living-The financial health of a population, as measured by the quantity of consumption by the members of that population. The measure most frequently used to estimate standard of living is gross national income per capita. One drawback to the standard of living measurement it does not take into account some factors which are important but hard to quantify, such as crime rate or environmental impact. (b) Objectives of macroeconomic policy is to maintain the full employment; increase the growth of national output in term of GDP; keep control the inflation in the acceptable level; induce the Regional Balance of the uneven distribution area and the balance of Trade which is the least objective because it's the government constraint rather than an objective on decision making. (c) The pillars of productivity growth in an economy: * The rate at which the economy builds up its stock of capital. * The rate at which technology improves. * The rate at which workforce quality or human capital is improving. Question 2 Item Amount /Jumlah (Billions of Ringgit/Bilion Ringgit) | Personal Consumption Expenditure 7,674Perbelanjaan...
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