Economics
Measures of National Income and Output
Measures of national income and output are used to gauge the economic performance of a country. They provide a comprehensive assessment of the total value of goods and services produced within a nation over a specific period. Key measures include Gross Domestic Product (GDP), Gross National Product (GNP), and Net National Product (NNP), which help policymakers and analysts understand the overall health and growth of an economy.
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9 Key excerpts on "Measures of National Income and Output"
eBook - PDF- Bradley A. Hansen(Author)
- 2006(Publication Date)
- Greenwood(Publisher)
Two Measuring the Performance of the American Economy The British politician Benjamin Disraeli once declared that there are three kinds of lies: ‘‘Lies, damn lies, and statistics.’’ To avoid being lied to with economic statistics, it is necessary to understand how economic performance is measured. It is easy to measure what is happening in a particular market. The price of gas at the station around the corner from my house is $2.09 today. Measuring the performance of the entire economy is not as straightforward because we are looking at millions of different goods and services. The objective of this chapter is to provide an introduction to how production, employment, and prices are measured for the economy as a whole. MEASURING TOTAL PRODUCTION Measuring the total production of an economy is called national in- come and product accounting. In the United States, the Bureau of Eco- nomic Analysis of the Commerce Department is responsible for national income and product accounts. They are called income and product accounts because in a market economy we can measure the total amount of pro- duction either by counting the flow of payments in the market for goods and services produced or by counting the flow of income in the market for resources. Total production and total income have to be nearly equal be- cause there are two sides to every sale. Every payment by a buyer is income to a seller. The total amount of production is the Gross Domestic Product (GDP), and the total amount of income is national income. Measuring Gross Domestic Product The most widely used measure of economic performance is GDP. In 2003 the GDP of the United States was $10,987,900,000,000. That is, GDP was more than $10 trillion. GDP is defined as the market value of final goods and services produced in a country during a specific period of time.
eBook - PDF- David Shapiro, Daniel MacDonald, Steven A. Greenlaw(Authors)
- 2022(Publication Date)
- Openstax(Publisher)
We mentioned above that we can think of GDP as total production and as total purchases. We can also think of it as total income since anything one produces and sells yields income. One of the closest cousins of GDP is the gross national product (GNP). GDP includes only what country produces within its borders. GNP adds what domestic businesses and labor abroad produces, and subtracts any payments that foreign labor and businesses located in the United States send home to other countries. In other words, GNP is based more on what a country's citizens and firms produce, wherever they are located, and GDP is based on what happens within a certain county's geographic boundaries. For the United States, the gap between GDP and GNP is relatively small; in recent years, only about 0.2%. For small nations, which may have a substantial share of their population working abroad and sending money back home, the difference can be substantial. We calculate net national product (NNP) by taking GNP and then subtracting the value of how much physical capital is worn out, or reduced in value because of aging, over the course of a year. The process by which capital ages and loses value is called depreciation. We can further subdivide NNP into national income, which includes all income to businesses and individuals, and personal income, which includes only income to people. The gross national income (GNI) includes the value of all goods and services produced by people from a country—whether in the country or not. Unlike the other methods, GNI essentially measures the wealth of a nation because it focuses on income, not output. As you will see in the discussion regarding global economic diversity, the World Bank now uses GNI to classify nations according to economic status. For practical purposes, it is not vital to memorize these definitions.
- Steven A. Greenlaw, Timothy Taylor, David Shapiro(Authors)
- 2017(Publication Date)
- Openstax(Publisher)
or education all elements that affect people’s happiness, whether people buy or sell these elements in the market or not building used as residence, factory, office building, retail store, or for other purposes gap between exports and imports exists when a nation's imports exceed its exports and it calculates them as imports –exports exists when a nation's exports exceed its imports and it calculates them as exports – imports during the business cycle, the lowest point of output in a recession, before a recovery begins 132 Chapter 5 | The Macroeconomic Perspective This OpenStax book is available for free at http://cnx.org/content/col23729/1.3 KEY CONCEPTS AND SUMMARY 5.1 Measuring the Size of the Economy: Gross Domestic Product Economists generally express the size of a nation’s economy as its gross domestic product (GDP), which measures the value of the output of all goods and services produced within the country in a year. Economists measure GDP by taking the quantities of all goods and services produced, multiplying them by their prices, and summing the total. Since GDP measures what is bought and sold in the economy, we can measure it either by the sum of what is purchased in the economy or what is produced. We can divide demand into consumption, investment, government, exports, and imports. We can divide what is produced in the economy into durable goods, nondurable goods, services, structures, and inventories. To avoid double counting, GDP counts only final output of goods and services, not the production of intermediate goods or the value of labor in the chain of production. 5.2 Adjusting Nominal Values to Real Values The nominal value of an economic statistic is the commonly announced value. The real value is the value after adjusting for changes in inflation.
eBook - PDF- William Boyes, Michael Melvin(Authors)
- 2015(Publication Date)
- Cengage Learning EMEA(Publisher)
3. Other measures of output and income include gross national product (GNP), net national product (NNP), national income (NI), personal income (PI), and disposable personal income (DPI). National Income Accounts GDP ¼ consumption þ investment þ government spending þ net exports GNP ¼ GDP þ receipts of factor income from the rest of the world — payments of factor income to the rest of the world NNP ¼ GNP capital consumption allowance NI ¼ NNP statistical discrepancy PI ¼ NI income earned but not received þ income received but not earned DPI ¼ PI personal taxes disposable personal income (DPI) Personal income minus personal taxes. 5. What is the difference between nominal and real GDP? nominal GDP A measure of national output based on the current prices of goods and services. real GDP A measure of the quantity of final goods and services produced, obtained by eliminating the influence of price changes from the nominal GDP statistics. Chapter 5 National Income Accounting 93 Copyright 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s). Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it. Because we prefer more goods and services to higher prices, it is better to have nominal GDP rise because of higher output than because of higher prices. We want nominal GDP to increase as a result of an increase in real GDP. Consider a simple example that illustrates the difference between nominal GDP and real GDP. Suppose a hypothetical economy produces just three goods: oranges, coconuts, and pizzas. The dollar value of output in three different years is listed in Figure 7.
eBook - PDF- Steven A. Greenlaw, Timothy Taylor(Authors)
- 2014(Publication Date)
- Openstax(Publisher)
healthcare, or education all elements that affect people’s happiness, whether these elements are bought and sold in the market or not building used as residence, factory, office building, retail store, or for other purposes gap between exports and imports exists when a nation's imports exceed its exports and is calculated as imports –exports exists when a nation's exports exceed its imports and is calculated as exports – imports during the business cycle, the lowest point of output in a recession, before a recovery begins 150 Chapter 6 | The Macroeconomic Perspective This OpenStax book is available for free at http://cnx.org/content/col11626/1.10 KEY CONCEPTS AND SUMMARY 6.1 Measuring the Size of the Economy: Gross Domestic Product The size of a nation’s economy is commonly expressed as its gross domestic product (GDP), which measures the value of the output of all goods and services produced within the country in a year. GDP is measured by taking the quantities of all goods and services produced, multiplying them by their prices, and summing the total. Since GDP measures what is bought and sold in the economy, it can be measured either by the sum of what is purchased in the economy or what is produced. Demand can be divided into consumption, investment, government, exports, and imports. What is produced in the economy can be divided into durable goods, nondurable goods, services, structures, and inventories. To avoid double counting, GDP counts only final output of goods and services, not the production of intermediate goods or the value of labor in the chain of production. 6.2 Adjusting Nominal Values to Real Values The nominal value of an economic statistic is the commonly announced value. The real value is the value after adjusting for changes in inflation.
eBook - PDFPostindustrial Possibilities
A Critique of Economic Discourse
- Fred L. Block(Author)
- 1990(Publication Date)
- University of California Press(Publisher)
155 three parts. The first considers the dimensions of economic output that have been excluded from the GNP measure and suggests that recent changes in some of these factors would overwhelm changes in measured output. The second part focuses on problems that are internal to the GNP measure. The argument is that for both meth-odological and theoretical reasons, GNP is a decreasingly accurate indicator of general trends in economic output. The final part exam-ines an additional set of factors that create a gap between trends in measured GNP and popular perceptions of changes in economic well-being. The purpose of this critique of the GNP concept is to reopen old debates about the nature and purpose of economic output. 3 Reli-ance on the GNP data as the measure of economic output makes it difficult to raise a whole series of important questions about what is and what should be produced. What GNP Measures It is a commonplace among economists that the Gross National Product is not a measure of the welfare of the population. 4 It cannot be this because it lacks a distributive dimension; a given level of GNP could be linked to a highly egalitarian or a highly inegalitarian distribution of income. Moreover, there are many other elements of the population's well-being that are excluded from the GNP data—such as environmental quality and life expec-tancy. Defenders of the GNP measure argue that even though it does not measure welfare, it does provide the best available indica-tor of the rate of growth of the economy over time. Although this argument has carried the day and has contributed to the extraordi-nary respect for the GNP reports, it cries out for reevaluation. 3. Some of these debates are not even very old, but they seem to have been forgotten in the 19805. In response to the social movements of the 19605 and 19705, some mainstream economists elaborated a critique of the GNP concept.
eBook - PDF- Kevin D. Hoover(Author)
- 2011(Publication Date)
- Cambridge University Press(Publisher)
The sum of national income and these four items is gross national income defined as the total income received by the residents of a country . In principle, gross national income should equal gross national product. In practice, there are measurement errors reflected in the statistical discrepancy . To get gross domestic product (i.e., the total production of final goods and services generated within the borders of a country), we subtract income receipts from the rest of the world – that part of the income earned abroad (e.g., profits from U.S. ownership of a foreign factory or interest on foreign bonds) – and add income payments to the rest of the world (income gener-ated from U.S. production but owned by foreigners). In other words, we work backward from GNP to GDP, where in the text we worked forward. It may be helpful to explain some puzzling terms that appear in the table. Inventory Valuation Adjustment (lines 6, 7, and 8). If a firm counts the cost of using an inventory item at its historic purchase price rather than a higher replacement cost, it will record a profit from the use by an amount unconnected to current production and, therefore, to GDP. The adjustment corrects for the discrepancy. Capital Consumption Adjustment (lines 6 and 7). The adjustment corrects for dif-ferences between depreciation allowances as reported for tax purposes and eco-nomically based measures of depreciation. Using 2009 data (billions of dollars), identity ( 2.1 ) is Y = C + I + G + ( EX − IM ) $14 , 256 = 10 , 089 + 1 , 629 + 2 , 931 + (1 , 564 − 1 , 957) . 7-28 7-29 7-33 7-43 7-41 7-42 (The numbers below the dollar values refer to the account number and line number from which the entry was drawn. For example, “7-28” means Table 3.7 , line 28.) 3.7.2 The Personal-Income-and-Outlay Account Table 3.8 is almost a rearrangement of the disposable-income identity: YD ≡ Y − T + TR ≡ C + S . (2.2) 3.7 Putting It All Together: Reading the NIPAs 103 Table 3.8.
eBook - PDFEconomic Environment NQF4 SB
TVET FIRST
- D Bekker, M Richards, FHB Serfontein, A Smith(Authors)
- 2013(Publication Date)
- Macmillan(Publisher)
Use the circular flow model to explain what would happen to the flow of spending, production and income in the economy in the following circumstances: a) More goods and services are exported. b) More is spent on imported goods and less on domestic produced goods. Domestic production: production that takes place inside the borders of a country Words & Terms 43 2.2 Gross domestic product An important measure of the level of economic activity (that is the level of production) in a country is its gross domestic product (GDP). The gross domestic product tells us what is happening to the level of domestic production in a country. An increase in the gross domestic product means that we are producing more goods and services and are better off than before. A decline in the gross domestic product indicates that we are producing fewer goods and services than before and we are therefore worse off. Module 2: Measure the macro economy Gross domestic product can be defined as the value of all final goods and services produced within the border of a country during a certain period. This period is usually a year. There are a number of important terms in this definition that we must take into account when we use the gross domestic product as a measure of economic activity. Only final goods and services are included. Final goods and services refer to those goods and services that are consumed by households and firms. Final goods are things such as television sets, clothes, chairs, bookcases, hats, and so on, and services are things such as those provided by lawyers, doctors, teachers, plumbers, beauticians, and so forth. In the production of the final goods and services, intermediate goods are used. Intermediate goods are purchased to be used as inputs in producing other goods before they are sold to end users.
eBook - PDF- Manzur Rashid, Peter Antonioni(Authors)
- 2015(Publication Date)
- For Dummies(Publisher)
In short, people tend to want to move to countries with high levels of capital and not many people, because their MPL will be high, assuring a relatively high real wage. 61 Chapter 4: Gross Domestic Product Calculating GDP: Assessing an Economy’s Health GDP is probably the single most useful statistic in appraising the health of an economy, so calculating it accurately is vitally important. Unfortunately, working out a country’s GDP is no simple matter. In this section we look at how GDP is calculated in the UK, why it’s not always 100 per cent accurate and also how to take into account improvement in the quality of goods. Other developed economies calculate GDP in a similar way. Introducing the basics In the UK, the Office for National Statistics (ONS) is responsible for calculat‑ ing GDP. It does so on a quarterly basis (every three months) by using three different ways of measuring GDP: ▶ ✓ Calculating total income: Basically adding up everyone’s income in the UK, including people’s wages from work and firms’ profits paid out as dividends to their owners/shareholders. This figure is estimated by using data on firms’ profits, individuals’ weekly earnings, employer surveys and data from the UK tax authority (HMRC). ▶ ✓ Calculating total output: Working out the value of all final goods that firms produce. This is done by surveying thousands of firms to obtain a detailed picture of exactly what they’re producing, in what quantities, using what inputs and for what price. To avoid double counting, only the value added by each firm is included. For this reason, this measure is often called gross value added (GVA). (See the section ‘Adding up total value added’ earlier in the chapter.) ▶ ✓ Calculating total expenditure: Adding up the amount of money that consumers, firms, the government and overseas buyers spend on final goods and services in an economy.
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