Bài giảng Macro - Chapter 6 Measuring Domestic Output and the Price Level

Measuring Domestic Outputandthe Price LevelChapter 6SLIDES PREPARED BY JUDITH SKUCE, GEORGIAN COLLEGE1In this chapter you will learnWhat gross domestic product (GDP) is and what it measuresThe expenditure approach to measuring gross domestic product (GDP) The income approach to measuring gross domestic product (GDP)2In this chapter you will learnThe distinction between nominal GDP and real GDPWhat the Consumer Price Index (CPI) is and how it is constructedThe shortcomings of GDP as a measure of a country’s well-being3Chapter 6 TopicsAssessing the Economy’s PerformanceGross Domestic ProductThe Expenditures ApproachIncome ApproachOther National AccountsNominal GDP vs Real GDPThe Consumer Price IndexShortcomings of GDP4Assessing the Economy’s PerformanceNational income accounting is useful to assess the health of the economy5Assessing the Economy’s PerformanceNational income accounting is useful to assess the health of the economyto track the long-run course over time6Assessing the Economy’s PerformanceNational income accounting is useful to assess the health of the economyto track the long-run course over timeas a basis for policy formation7Chapter 6 TopicsAssessing the Economy’s PerformanceGross Domestic ProductThe Expenditures ApproachIncome ApproachOther National AccountsNominal GDP vs Real GDPThe Consumer Price IndexShortcomings of GDP8 A Monetary Measurethe total market value of all final goods and services produced in the economy in one yearGross Domestic Product9 A Monetary Measure Avoiding Multiple Countingthe total market value of all final goods and services produced in the economy in one yearGross Domestic Productillustrated...10Production Stage Sales ValueSheep Ranch $120 Wool Processor $180 Suit Manufacturer $220 Wholesaler $270 Retailer $350 Total $1140 GDP & Value Added:The Story of a SuitValue Added$120$ 60$ 40$ 50$ 80$350Table 6-211Production Stage Sales ValueSheep Ranch $120 Wool Processor $180 Suit Manufacturer $220 Wholesaler $270 Retailer $350 Total $1140 GDP & Value Added:The Story of a SuitValue Added$120$ 60$ 40$ 50$ 80$350Table 6-2intermediate good12Production Stage Sales ValueSheep Ranch $120 Wool Processor $180 Suit Manufacturer $220 Wholesaler $270 Retailer $350 Total $1140 GDP & Value Added:The Story of a SuitValue Added$120$ 60$ 40$ 50$ 80$350Table 6-2final good13 A Monetary Measure Avoiding Multiple Counting Excludes Nonproduction TransactionsFinancial Transactions - Public Transfer Payments - Private Transfer Payments - Stock-Market Transactionsthe total market value of all final goods and services produced in the economy in one yearGross Domestic Product14 A Monetary Measure Avoiding Multiple Counting Excludes Nonproduction TransactionsFinancial TransactionsSecond-hand Salesthe total market value of all final goods and services produced in the economy in one yearGross Domestic Product15The money income derived fromproduction of this year’s outputAmount spent to purchasethis year’s total outputExpenditures ApproachIncome ApproachGDP16Consumption expenditures by households+Investment expenditures by businesses+Government purchases of goods & services+Expenditures by foreignersWages+Rents+Interest+Profits+Statistical discrepancy=GDP=Expenditures approachIncome approachFigure 6-117© 2002 McGraw-Hill Ryerson Ltd.Macroeconomics, Chapter 617Chapter 6 TopicsAssessing the Economy’s PerformanceGross Domestic ProductThe Expenditures ApproachIncome ApproachOther National AccountsNominal GDP vs Real GDPThe Consumer Price IndexShortcomings of GDP18Expenditures ApproachEverything that is produced eitheris purchased, orends up in inventoryGross Domestic Product19Amount spent to purchasethis year’s total outputGDP = C + Ig + G + XnExpenditures ApproachGross Domestic Product20 Durables Nondurables Semi-durables ServicesGDP: Expenditures ApproachPersonal Consumption Expenditure ( C )21Gross Private Domestic Investment ( Ig )GDP: Expenditures ApproachPersonal Consumption Expenditure ( C ) Machinery, Equipment, & Tools All Construction Changes in InventoriesGross vs Net Investment22Gross vs Net InvestmentGross Private Domestic Investment ( Ig )GDP: Expenditures ApproachPersonal Consumption Expenditure ( C ) Machinery, Equipment, & Tools All Construction Changes in InventoriesNet Investment:In= Ig- depreciationNOTES:23Government Purchases ( G )GDP: Expenditures ApproachGross Private Domestic Investment ( Ig )Personal Consumption Expenditure ( C )G Excludes Transfer PaymentsNOTES:24Government Purchases ( G )GDP: Expenditures ApproachGross Private Domestic Investment ( Ig )Personal Consumption Expenditure ( C )Net Exports ( Xn )NOTES:Net Exports = Exports - Imports25SummaryC + I + G + X = GDPgnGDP: Expenditures Approach26GDP 2000 ($billions)Personal Consumption $591.1Gross Investment 184.9Government Current Purchases 213.9Net Exports 48.4Statistical Discrepancy .5Gross Domestic Product $1038.8GDP: Expenditures Approach27Chapter 6 TopicsAssessing the Economy’s PerformanceGross Domestic ProductThe Expenditures ApproachIncome ApproachOther National AccountsNominal GDP vs Real GDPThe Consumer Price IndexShortcomings of GDP28A dollar’s worth of outputgeneratesa dollar’s worth of incomeGDP: Income Approach29 Wages, Salaries, Labour Income + Corporate Profits before Taxes +GDP: Income ApproachNOTES:Corporate Income TaxesDividendsUndistributed Corporate Profits30 Wages, Salaries, Labour Income + Corporate Profits before Taxes +GDP: Income Approach Interest & Investment Income + Farmers’ Income + Net Income of Non-Farm Unincorp. Business, Including RentequalsNET DOMESTIC INCOME (NDI)31NET DOMESTIC INCOME 2000$ billionsWages, etc. $534.6Corporate Profits before Taxes 137.1Interest & Investment Income 52.0Farmers’ Income 2.2Net Income of Non-Farm Unincorp. Businesses 62.0Inventory Valuation Adjustment - 2.3Net Domestic Income $785.6GDP: Income ApproachBut GDP was $1038.8 billion!What’s wrong?32NET DOMESTIC INCOME (NDI)plus indirect taxes depreciation (CCA)equals GDPGDP: Income Approachstatistical discrepancy33NET DOMESTIC INCOME 2000$ billionsNet Domestic Income $785.6Indirect Taxes less Subsidies 128.5Capital Consumption Allowance 125.2Statistical Discrepancy -.5Gross Domestic Product $1038.8GDP: Income Approach34Chapter 6 TopicsAssessing the Economy’s PerformanceGross Domestic ProductThe Expenditures ApproachIncome ApproachOther National AccountsNominal GDP vs Real GDPThe Consumer Price IndexShortcomings of GDP35GNP Gross National Productoutput of Canadians vs output in CanadaGDP > GNP in CanadaOther National Accounts36GNP Gross National ProductPI Personal IncomeNDI less earned income not receivedplus income received but not earnedOther National Accounts37GNP Gross National ProductPI Personal IncomeDI Disposable Incomepersonal income less taxes & transfers to governmentpersonal saving is the amount remaining after consumption has been deducted from DIOther National Accounts38Chapter 6 TopicsAssessing the Economy’s PerformanceGross Domestic ProductThe Expenditures ApproachIncome ApproachOther National AccountsNominal GDP vs Real GDPThe Consumer Price IndexShortcomings of GDP39GDP = real quantities X priceswhat is really changing?price?quantity?both?Nominal GDP vs Real GDP40NOMINAL GDP measures the value of current production in current pricesREAL GDP measures the value of current production in base year pricesNominal GDP vs Real GDP41Price Index=Real GDPNominal GDPThe GDP Price Index:Nominal GDP vs Real GDPprice index is a % (do not write % sign)use decimal form for calculationse.g., 103% = 1.03NOTES:42Price Index=Real GDPNominal GDPThe GDP Deflator:Real GDP=Price IndexNominal GDPNominal GDP vs Real GDP43Calculating Real GDPTable 6-4YearUnits of outputPricePrice IndexNominal GDPReal GDP15$10100$50$50272020014070382525020080410305112830010030030811028044YearNominalGDPReal GDPGDP Price Index197090.4351.4535.11993725.0714.6769.417.21980315.258.9101.51995807.1104.9Table 6-645Chapter 6 TopicsAssessing the Economy’s PerformanceGross Domestic ProductThe Expenditures ApproachIncome ApproachOther National AccountsNominal GDP vs Real GDPThe Consumer Price IndexShortcomings of GDP46compares the cost of a FIXED basket of CONSUMER goods in the base year & the year of interestnote the GDP deflator is calculated with a CHANGING basket of ALL goodsConsumer Price Index (CPI)47CPI=basket @ current pricesbasket @ base year pricesConsumer Price Index (CPI)48Chapter 6 TopicsAssessing the Economy’s PerformanceGross Domestic ProductThe Expenditures ApproachIncome ApproachOther National AccountsNominal GDP vs Real GDPThe Consumer Price IndexShortcomings of GDP49Shortcomings of GDPGDP has several shortcomings, bothas a measure of total outputas a measure of well-being50Shortcomings of GDPNon-Market TransactionsLeisureImproved Product QualityThe Underground Economy51GLOBAL PERSPECTIVE 6-252Shortcomings of GDPGDP & the EnvironmentComposition & Distribution of OutputPer Capita OutputNon-Economic Sources of Well-BeingNon-Market TransactionsLeisureImproved Product QualityThe Underground Economy53Chapter 6 TopicsAssessing the Economy’s PerformanceGross Domestic ProductThe Expenditures ApproachIncome ApproachOther National AccountsNominal GDP vs Real GDPThe Consumer Price IndexShortcomings of GDP54NEXT....INTRODUCTION TO ECONOMIC GROWTH & FLUCTUATIONSChapter 755