chapter 5: measuring gdp and prices - james murray | department of
TRANSCRIPT
![Page 1: Chapter 5: Measuring GDP and Prices - James Murray | Department of](https://reader031.vdocuments.net/reader031/viewer/2022020704/61fb5f162e268c58cd5d617a/html5/thumbnails/1.jpg)
National income accountsReal GDP
Shortcomings of GDP
Unit 4: Measuring GDP and Prices
ECO 120 Global Macroeconomics
ECO 120 Global Macroeconomics Unit 4: Measuring GDP and Prices
![Page 2: Chapter 5: Measuring GDP and Prices - James Murray | Department of](https://reader031.vdocuments.net/reader031/viewer/2022020704/61fb5f162e268c58cd5d617a/html5/thumbnails/2.jpg)
National income accountsReal GDP
Shortcomings of GDP
ReadingGoals
Reading 1/ 22
Gross Domestic Product (GDP): Module 11
Real vs Nominal GDP: Module 12
ECO 120 Global Macroeconomics Unit 4: Measuring GDP and Prices
![Page 3: Chapter 5: Measuring GDP and Prices - James Murray | Department of](https://reader031.vdocuments.net/reader031/viewer/2022020704/61fb5f162e268c58cd5d617a/html5/thumbnails/3.jpg)
National income accountsReal GDP
Shortcomings of GDP
ReadingGoals
Goals 2/ 22
Specific Goals:
Understand how to measure a country’s output.Learn a way to measure the overall level of prices in theeconomy.Learn some problems with these measures.
Learning Objectives:
LO4: Define macroeconomic measures of production, prices,inflation, and employment. Students will be able to explainhow each is measured and evaluate usefulness and limitationsfor each measure.
ECO 120 Global Macroeconomics Unit 4: Measuring GDP and Prices
![Page 4: Chapter 5: Measuring GDP and Prices - James Murray | Department of](https://reader031.vdocuments.net/reader031/viewer/2022020704/61fb5f162e268c58cd5d617a/html5/thumbnails/4.jpg)
National income accountsReal GDP
Shortcomings of GDP
Types of MeasuresGross domestic product
National income accounting 3/ 22
National income accounting: different measures of acountry’s overall economic performance.
Why do we care?
Assess the health of the economy by comparing output /person across countries and across time periods.Track long run growth out the economy.Access the effectiveness of macroeconomic policies.
Measures:
Gross domestic productNet domestic productNational incomePersonal incomeDisposable income
ECO 120 Global Macroeconomics Unit 4: Measuring GDP and Prices
![Page 5: Chapter 5: Measuring GDP and Prices - James Murray | Department of](https://reader031.vdocuments.net/reader031/viewer/2022020704/61fb5f162e268c58cd5d617a/html5/thumbnails/5.jpg)
National income accountsReal GDP
Shortcomings of GDP
Types of MeasuresGross domestic product
National income accounting 3/ 22
National income accounting: different measures of acountry’s overall economic performance.
Why do we care?
Assess the health of the economy by comparing output /person across countries and across time periods.Track long run growth out the economy.Access the effectiveness of macroeconomic policies.
Measures:
Gross domestic productNet domestic productNational incomePersonal incomeDisposable income
ECO 120 Global Macroeconomics Unit 4: Measuring GDP and Prices
![Page 6: Chapter 5: Measuring GDP and Prices - James Murray | Department of](https://reader031.vdocuments.net/reader031/viewer/2022020704/61fb5f162e268c58cd5d617a/html5/thumbnails/6.jpg)
National income accountsReal GDP
Shortcomings of GDP
Types of MeasuresGross domestic product
National income accounting 3/ 22
National income accounting: different measures of acountry’s overall economic performance.
Why do we care?
Assess the health of the economy by comparing output /person across countries and across time periods.Track long run growth out the economy.Access the effectiveness of macroeconomic policies.
Measures:
Gross domestic productNet domestic productNational incomePersonal incomeDisposable income
ECO 120 Global Macroeconomics Unit 4: Measuring GDP and Prices
![Page 7: Chapter 5: Measuring GDP and Prices - James Murray | Department of](https://reader031.vdocuments.net/reader031/viewer/2022020704/61fb5f162e268c58cd5d617a/html5/thumbnails/7.jpg)
National income accountsReal GDP
Shortcomings of GDP
Types of MeasuresGross domestic product
National income accounting 3/ 22
National income accounting: different measures of acountry’s overall economic performance.
Why do we care?
Assess the health of the economy by comparing output /person across countries and across time periods.Track long run growth out the economy.Access the effectiveness of macroeconomic policies.
Measures:
Gross domestic productNet domestic productNational incomePersonal incomeDisposable income
ECO 120 Global Macroeconomics Unit 4: Measuring GDP and Prices
![Page 8: Chapter 5: Measuring GDP and Prices - James Murray | Department of](https://reader031.vdocuments.net/reader031/viewer/2022020704/61fb5f162e268c58cd5d617a/html5/thumbnails/8.jpg)
National income accountsReal GDP
Shortcomings of GDP
Types of MeasuresGross domestic product
National income accounting 3/ 22
National income accounting: different measures of acountry’s overall economic performance.
Why do we care?
Assess the health of the economy by comparing output /person across countries and across time periods.Track long run growth out the economy.Access the effectiveness of macroeconomic policies.
Measures:
Gross domestic productNet domestic productNational incomePersonal incomeDisposable income
ECO 120 Global Macroeconomics Unit 4: Measuring GDP and Prices
![Page 9: Chapter 5: Measuring GDP and Prices - James Murray | Department of](https://reader031.vdocuments.net/reader031/viewer/2022020704/61fb5f162e268c58cd5d617a/html5/thumbnails/9.jpg)
National income accountsReal GDP
Shortcomings of GDP
Types of MeasuresGross domestic product
National income accounting 3/ 22
National income accounting: different measures of acountry’s overall economic performance.
Why do we care?
Assess the health of the economy by comparing output /person across countries and across time periods.Track long run growth out the economy.Access the effectiveness of macroeconomic policies.
Measures:
Gross domestic productNet domestic productNational incomePersonal incomeDisposable income
ECO 120 Global Macroeconomics Unit 4: Measuring GDP and Prices
![Page 10: Chapter 5: Measuring GDP and Prices - James Murray | Department of](https://reader031.vdocuments.net/reader031/viewer/2022020704/61fb5f162e268c58cd5d617a/html5/thumbnails/10.jpg)
National income accountsReal GDP
Shortcomings of GDP
Types of MeasuresGross domestic product
National income accounting 3/ 22
National income accounting: different measures of acountry’s overall economic performance.
Why do we care?
Assess the health of the economy by comparing output /person across countries and across time periods.Track long run growth out the economy.Access the effectiveness of macroeconomic policies.
Measures:
Gross domestic productNet domestic productNational incomePersonal incomeDisposable income
ECO 120 Global Macroeconomics Unit 4: Measuring GDP and Prices
![Page 11: Chapter 5: Measuring GDP and Prices - James Murray | Department of](https://reader031.vdocuments.net/reader031/viewer/2022020704/61fb5f162e268c58cd5d617a/html5/thumbnails/11.jpg)
National income accountsReal GDP
Shortcomings of GDP
Types of MeasuresGross domestic product
National income accounting 3/ 22
National income accounting: different measures of acountry’s overall economic performance.
Why do we care?
Assess the health of the economy by comparing output /person across countries and across time periods.Track long run growth out the economy.Access the effectiveness of macroeconomic policies.
Measures:
Gross domestic productNet domestic productNational incomePersonal incomeDisposable income
ECO 120 Global Macroeconomics Unit 4: Measuring GDP and Prices
![Page 12: Chapter 5: Measuring GDP and Prices - James Murray | Department of](https://reader031.vdocuments.net/reader031/viewer/2022020704/61fb5f162e268c58cd5d617a/html5/thumbnails/12.jpg)
National income accountsReal GDP
Shortcomings of GDP
Types of MeasuresGross domestic product
National income accounting 3/ 22
National income accounting: different measures of acountry’s overall economic performance.
Why do we care?
Assess the health of the economy by comparing output /person across countries and across time periods.Track long run growth out the economy.Access the effectiveness of macroeconomic policies.
Measures:
Gross domestic productNet domestic productNational incomePersonal incomeDisposable income
ECO 120 Global Macroeconomics Unit 4: Measuring GDP and Prices
![Page 13: Chapter 5: Measuring GDP and Prices - James Murray | Department of](https://reader031.vdocuments.net/reader031/viewer/2022020704/61fb5f162e268c58cd5d617a/html5/thumbnails/13.jpg)
National income accountsReal GDP
Shortcomings of GDP
Types of MeasuresGross domestic product
National income accounting 3/ 22
National income accounting: different measures of acountry’s overall economic performance.
Why do we care?
Assess the health of the economy by comparing output /person across countries and across time periods.Track long run growth out the economy.Access the effectiveness of macroeconomic policies.
Measures:
Gross domestic productNet domestic productNational incomePersonal incomeDisposable income
ECO 120 Global Macroeconomics Unit 4: Measuring GDP and Prices
![Page 14: Chapter 5: Measuring GDP and Prices - James Murray | Department of](https://reader031.vdocuments.net/reader031/viewer/2022020704/61fb5f162e268c58cd5d617a/html5/thumbnails/14.jpg)
National income accountsReal GDP
Shortcomings of GDP
Types of MeasuresGross domestic product
National income accounting 3/ 22
National income accounting: different measures of acountry’s overall economic performance.
Why do we care?
Assess the health of the economy by comparing output /person across countries and across time periods.Track long run growth out the economy.Access the effectiveness of macroeconomic policies.
Measures:
Gross domestic productNet domestic productNational incomePersonal incomeDisposable income
ECO 120 Global Macroeconomics Unit 4: Measuring GDP and Prices
![Page 15: Chapter 5: Measuring GDP and Prices - James Murray | Department of](https://reader031.vdocuments.net/reader031/viewer/2022020704/61fb5f162e268c58cd5d617a/html5/thumbnails/15.jpg)
National income accountsReal GDP
Shortcomings of GDP
Types of MeasuresGross domestic product
Gross domestic product 4/ 22
Gross domestic product: total market value of all finalgoods and services produced in a given year.
To avoid double counting, intermediate goods are notcounted.
Necessary that it be a monetary measure.
Excludes financial transactions.
Excludes secondhand sales / sales of used goods.
ECO 120 Global Macroeconomics Unit 4: Measuring GDP and Prices
![Page 16: Chapter 5: Measuring GDP and Prices - James Murray | Department of](https://reader031.vdocuments.net/reader031/viewer/2022020704/61fb5f162e268c58cd5d617a/html5/thumbnails/16.jpg)
National income accountsReal GDP
Shortcomings of GDP
Types of MeasuresGross domestic product
Gross domestic product 4/ 22
Gross domestic product: total market value of all finalgoods and services produced in a given year.
To avoid double counting, intermediate goods are notcounted.
Necessary that it be a monetary measure.
Excludes financial transactions.
Excludes secondhand sales / sales of used goods.
ECO 120 Global Macroeconomics Unit 4: Measuring GDP and Prices
![Page 17: Chapter 5: Measuring GDP and Prices - James Murray | Department of](https://reader031.vdocuments.net/reader031/viewer/2022020704/61fb5f162e268c58cd5d617a/html5/thumbnails/17.jpg)
National income accountsReal GDP
Shortcomings of GDP
Types of MeasuresGross domestic product
Gross domestic product 4/ 22
Gross domestic product: total market value of all finalgoods and services produced in a given year.
To avoid double counting, intermediate goods are notcounted.
Necessary that it be a monetary measure.
Excludes financial transactions.
Excludes secondhand sales / sales of used goods.
ECO 120 Global Macroeconomics Unit 4: Measuring GDP and Prices
![Page 18: Chapter 5: Measuring GDP and Prices - James Murray | Department of](https://reader031.vdocuments.net/reader031/viewer/2022020704/61fb5f162e268c58cd5d617a/html5/thumbnails/18.jpg)
National income accountsReal GDP
Shortcomings of GDP
Types of MeasuresGross domestic product
Gross domestic product 4/ 22
Gross domestic product: total market value of all finalgoods and services produced in a given year.
To avoid double counting, intermediate goods are notcounted.
Necessary that it be a monetary measure.
Excludes financial transactions.
Excludes secondhand sales / sales of used goods.
ECO 120 Global Macroeconomics Unit 4: Measuring GDP and Prices
![Page 19: Chapter 5: Measuring GDP and Prices - James Murray | Department of](https://reader031.vdocuments.net/reader031/viewer/2022020704/61fb5f162e268c58cd5d617a/html5/thumbnails/19.jpg)
National income accountsReal GDP
Shortcomings of GDP
Types of MeasuresGross domestic product
Gross domestic product 4/ 22
Gross domestic product: total market value of all finalgoods and services produced in a given year.
To avoid double counting, intermediate goods are notcounted.
Necessary that it be a monetary measure.
Excludes financial transactions.
Excludes secondhand sales / sales of used goods.
ECO 120 Global Macroeconomics Unit 4: Measuring GDP and Prices
![Page 20: Chapter 5: Measuring GDP and Prices - James Murray | Department of](https://reader031.vdocuments.net/reader031/viewer/2022020704/61fb5f162e268c58cd5d617a/html5/thumbnails/20.jpg)
National income accountsReal GDP
Shortcomings of GDP
Types of MeasuresGross domestic product
Example: $350 suit 5/ 22
The birth of suit:1 Sheep rancher produces and sells $120 wool to a wool
processor.2 A firm processes the wool and sells the material to a suit
manufacturer for $180.3 The suit manufacturer makes a suit and sells it to a wholesaler
for $200.4 The wholesaler sells the suit to a retailer for $250.5 The retailer sells the suit to you for $350.
If we counted all these transactions in GDP we get:$120 + $180 + $200 + $250 + $350 = $1,100.
When actually, in the end we are only left with a suit worth$350.
ECO 120 Global Macroeconomics Unit 4: Measuring GDP and Prices
![Page 21: Chapter 5: Measuring GDP and Prices - James Murray | Department of](https://reader031.vdocuments.net/reader031/viewer/2022020704/61fb5f162e268c58cd5d617a/html5/thumbnails/21.jpg)
National income accountsReal GDP
Shortcomings of GDP
Types of MeasuresGross domestic product
Example: $350 suit 5/ 22
The birth of suit:1 Sheep rancher produces and sells $120 wool to a wool
processor.2 A firm processes the wool and sells the material to a suit
manufacturer for $180.3 The suit manufacturer makes a suit and sells it to a wholesaler
for $200.4 The wholesaler sells the suit to a retailer for $250.5 The retailer sells the suit to you for $350.
If we counted all these transactions in GDP we get:$120 + $180 + $200 + $250 + $350 = $1,100.
When actually, in the end we are only left with a suit worth$350.
ECO 120 Global Macroeconomics Unit 4: Measuring GDP and Prices
![Page 22: Chapter 5: Measuring GDP and Prices - James Murray | Department of](https://reader031.vdocuments.net/reader031/viewer/2022020704/61fb5f162e268c58cd5d617a/html5/thumbnails/22.jpg)
National income accountsReal GDP
Shortcomings of GDP
Types of MeasuresGross domestic product
Example: $350 suit 5/ 22
The birth of suit:1 Sheep rancher produces and sells $120 wool to a wool
processor.2 A firm processes the wool and sells the material to a suit
manufacturer for $180.3 The suit manufacturer makes a suit and sells it to a wholesaler
for $200.4 The wholesaler sells the suit to a retailer for $250.5 The retailer sells the suit to you for $350.
If we counted all these transactions in GDP we get:$120 + $180 + $200 + $250 + $350 = $1,100.
When actually, in the end we are only left with a suit worth$350.
ECO 120 Global Macroeconomics Unit 4: Measuring GDP and Prices
![Page 23: Chapter 5: Measuring GDP and Prices - James Murray | Department of](https://reader031.vdocuments.net/reader031/viewer/2022020704/61fb5f162e268c58cd5d617a/html5/thumbnails/23.jpg)
National income accountsReal GDP
Shortcomings of GDP
Types of MeasuresGross domestic product
Example: $350 suit 5/ 22
The birth of suit:1 Sheep rancher produces and sells $120 wool to a wool
processor.2 A firm processes the wool and sells the material to a suit
manufacturer for $180.3 The suit manufacturer makes a suit and sells it to a wholesaler
for $200.4 The wholesaler sells the suit to a retailer for $250.5 The retailer sells the suit to you for $350.
If we counted all these transactions in GDP we get:$120 + $180 + $200 + $250 + $350 = $1,100.
When actually, in the end we are only left with a suit worth$350.
ECO 120 Global Macroeconomics Unit 4: Measuring GDP and Prices
![Page 24: Chapter 5: Measuring GDP and Prices - James Murray | Department of](https://reader031.vdocuments.net/reader031/viewer/2022020704/61fb5f162e268c58cd5d617a/html5/thumbnails/24.jpg)
National income accountsReal GDP
Shortcomings of GDP
Types of MeasuresGross domestic product
Example: $350 suit 5/ 22
The birth of suit:1 Sheep rancher produces and sells $120 wool to a wool
processor.2 A firm processes the wool and sells the material to a suit
manufacturer for $180.3 The suit manufacturer makes a suit and sells it to a wholesaler
for $200.4 The wholesaler sells the suit to a retailer for $250.5 The retailer sells the suit to you for $350.
If we counted all these transactions in GDP we get:$120 + $180 + $200 + $250 + $350 = $1,100.
When actually, in the end we are only left with a suit worth$350.
ECO 120 Global Macroeconomics Unit 4: Measuring GDP and Prices
![Page 25: Chapter 5: Measuring GDP and Prices - James Murray | Department of](https://reader031.vdocuments.net/reader031/viewer/2022020704/61fb5f162e268c58cd5d617a/html5/thumbnails/25.jpg)
National income accountsReal GDP
Shortcomings of GDP
Types of MeasuresGross domestic product
Example: $350 suit 5/ 22
The birth of suit:1 Sheep rancher produces and sells $120 wool to a wool
processor.2 A firm processes the wool and sells the material to a suit
manufacturer for $180.3 The suit manufacturer makes a suit and sells it to a wholesaler
for $200.4 The wholesaler sells the suit to a retailer for $250.5 The retailer sells the suit to you for $350.
If we counted all these transactions in GDP we get:$120 + $180 + $200 + $250 + $350 = $1,100.
When actually, in the end we are only left with a suit worth$350.
ECO 120 Global Macroeconomics Unit 4: Measuring GDP and Prices
![Page 26: Chapter 5: Measuring GDP and Prices - James Murray | Department of](https://reader031.vdocuments.net/reader031/viewer/2022020704/61fb5f162e268c58cd5d617a/html5/thumbnails/26.jpg)
National income accountsReal GDP
Shortcomings of GDP
Types of MeasuresGross domestic product
Example: $350 suit 5/ 22
The birth of suit:1 Sheep rancher produces and sells $120 wool to a wool
processor.2 A firm processes the wool and sells the material to a suit
manufacturer for $180.3 The suit manufacturer makes a suit and sells it to a wholesaler
for $200.4 The wholesaler sells the suit to a retailer for $250.5 The retailer sells the suit to you for $350.
If we counted all these transactions in GDP we get:$120 + $180 + $200 + $250 + $350 = $1,100.
When actually, in the end we are only left with a suit worth$350.
ECO 120 Global Macroeconomics Unit 4: Measuring GDP and Prices
![Page 27: Chapter 5: Measuring GDP and Prices - James Murray | Department of](https://reader031.vdocuments.net/reader031/viewer/2022020704/61fb5f162e268c58cd5d617a/html5/thumbnails/27.jpg)
National income accountsReal GDP
Shortcomings of GDP
Types of MeasuresGross domestic product
Example: $350 suit 5/ 22
The birth of suit:1 Sheep rancher produces and sells $120 wool to a wool
processor.2 A firm processes the wool and sells the material to a suit
manufacturer for $180.3 The suit manufacturer makes a suit and sells it to a wholesaler
for $200.4 The wholesaler sells the suit to a retailer for $250.5 The retailer sells the suit to you for $350.
If we counted all these transactions in GDP we get:$120 + $180 + $200 + $250 + $350 = $1,100.
When actually, in the end we are only left with a suit worth$350.
ECO 120 Global Macroeconomics Unit 4: Measuring GDP and Prices
![Page 28: Chapter 5: Measuring GDP and Prices - James Murray | Department of](https://reader031.vdocuments.net/reader031/viewer/2022020704/61fb5f162e268c58cd5d617a/html5/thumbnails/28.jpg)
National income accountsReal GDP
Shortcomings of GDP
Types of MeasuresGross domestic product
Value added approach 6/ 22
Add to GDP only the value added at each step:1 Sheep rancher: $1202 Wool processor: $180 - $120 = $603 Suit manufacturer: $200 - $180 = $204 Wholesaler: $250 - $200 = $505 Retailer: $350 - $250 = $100
Add up the value added at every stage of production:$120 + $60 + $20 + $50 + $100 = $350
ECO 120 Global Macroeconomics Unit 4: Measuring GDP and Prices
![Page 29: Chapter 5: Measuring GDP and Prices - James Murray | Department of](https://reader031.vdocuments.net/reader031/viewer/2022020704/61fb5f162e268c58cd5d617a/html5/thumbnails/29.jpg)
National income accountsReal GDP
Shortcomings of GDP
Types of MeasuresGross domestic product
Value added approach 6/ 22
Add to GDP only the value added at each step:1 Sheep rancher: $1202 Wool processor: $180 - $120 = $603 Suit manufacturer: $200 - $180 = $204 Wholesaler: $250 - $200 = $505 Retailer: $350 - $250 = $100
Add up the value added at every stage of production:$120 + $60 + $20 + $50 + $100 = $350
ECO 120 Global Macroeconomics Unit 4: Measuring GDP and Prices
![Page 30: Chapter 5: Measuring GDP and Prices - James Murray | Department of](https://reader031.vdocuments.net/reader031/viewer/2022020704/61fb5f162e268c58cd5d617a/html5/thumbnails/30.jpg)
National income accountsReal GDP
Shortcomings of GDP
Types of MeasuresGross domestic product
Value added approach 6/ 22
Add to GDP only the value added at each step:1 Sheep rancher: $1202 Wool processor: $180 - $120 = $603 Suit manufacturer: $200 - $180 = $204 Wholesaler: $250 - $200 = $505 Retailer: $350 - $250 = $100
Add up the value added at every stage of production:$120 + $60 + $20 + $50 + $100 = $350
ECO 120 Global Macroeconomics Unit 4: Measuring GDP and Prices
![Page 31: Chapter 5: Measuring GDP and Prices - James Murray | Department of](https://reader031.vdocuments.net/reader031/viewer/2022020704/61fb5f162e268c58cd5d617a/html5/thumbnails/31.jpg)
National income accountsReal GDP
Shortcomings of GDP
Types of MeasuresGross domestic product
Value added approach 6/ 22
Add to GDP only the value added at each step:1 Sheep rancher: $1202 Wool processor: $180 - $120 = $603 Suit manufacturer: $200 - $180 = $204 Wholesaler: $250 - $200 = $505 Retailer: $350 - $250 = $100
Add up the value added at every stage of production:$120 + $60 + $20 + $50 + $100 = $350
ECO 120 Global Macroeconomics Unit 4: Measuring GDP and Prices
![Page 32: Chapter 5: Measuring GDP and Prices - James Murray | Department of](https://reader031.vdocuments.net/reader031/viewer/2022020704/61fb5f162e268c58cd5d617a/html5/thumbnails/32.jpg)
National income accountsReal GDP
Shortcomings of GDP
Types of MeasuresGross domestic product
Value added approach 6/ 22
Add to GDP only the value added at each step:1 Sheep rancher: $1202 Wool processor: $180 - $120 = $603 Suit manufacturer: $200 - $180 = $204 Wholesaler: $250 - $200 = $505 Retailer: $350 - $250 = $100
Add up the value added at every stage of production:$120 + $60 + $20 + $50 + $100 = $350
ECO 120 Global Macroeconomics Unit 4: Measuring GDP and Prices
![Page 33: Chapter 5: Measuring GDP and Prices - James Murray | Department of](https://reader031.vdocuments.net/reader031/viewer/2022020704/61fb5f162e268c58cd5d617a/html5/thumbnails/33.jpg)
National income accountsReal GDP
Shortcomings of GDP
Types of MeasuresGross domestic product
Value added approach 6/ 22
Add to GDP only the value added at each step:1 Sheep rancher: $1202 Wool processor: $180 - $120 = $603 Suit manufacturer: $200 - $180 = $204 Wholesaler: $250 - $200 = $505 Retailer: $350 - $250 = $100
Add up the value added at every stage of production:$120 + $60 + $20 + $50 + $100 = $350
ECO 120 Global Macroeconomics Unit 4: Measuring GDP and Prices
![Page 34: Chapter 5: Measuring GDP and Prices - James Murray | Department of](https://reader031.vdocuments.net/reader031/viewer/2022020704/61fb5f162e268c58cd5d617a/html5/thumbnails/34.jpg)
National income accountsReal GDP
Shortcomings of GDP
Types of MeasuresGross domestic product
Value added approach 6/ 22
Add to GDP only the value added at each step:1 Sheep rancher: $1202 Wool processor: $180 - $120 = $603 Suit manufacturer: $200 - $180 = $204 Wholesaler: $250 - $200 = $505 Retailer: $350 - $250 = $100
Add up the value added at every stage of production:$120 + $60 + $20 + $50 + $100 = $350
ECO 120 Global Macroeconomics Unit 4: Measuring GDP and Prices
![Page 35: Chapter 5: Measuring GDP and Prices - James Murray | Department of](https://reader031.vdocuments.net/reader031/viewer/2022020704/61fb5f162e268c58cd5d617a/html5/thumbnails/35.jpg)
National income accountsReal GDP
Shortcomings of GDP
Types of MeasuresGross domestic product
What’s not counted? 7/ 22
Non-production transactions: transactions that do not involveproduction of a good.
Financial transactions
Public transfer payments such as social security payments andveterans payments.Private transfer payments such as gifts between familymembers.Stock market transactions.
Secondhand transactions: contribute nothing to production,just moving ownership of final goods between people.
ECO 120 Global Macroeconomics Unit 4: Measuring GDP and Prices
![Page 36: Chapter 5: Measuring GDP and Prices - James Murray | Department of](https://reader031.vdocuments.net/reader031/viewer/2022020704/61fb5f162e268c58cd5d617a/html5/thumbnails/36.jpg)
National income accountsReal GDP
Shortcomings of GDP
Types of MeasuresGross domestic product
What’s not counted? 7/ 22
Non-production transactions: transactions that do not involveproduction of a good.
Financial transactions
Public transfer payments such as social security payments andveterans payments.Private transfer payments such as gifts between familymembers.Stock market transactions.
Secondhand transactions: contribute nothing to production,just moving ownership of final goods between people.
ECO 120 Global Macroeconomics Unit 4: Measuring GDP and Prices
![Page 37: Chapter 5: Measuring GDP and Prices - James Murray | Department of](https://reader031.vdocuments.net/reader031/viewer/2022020704/61fb5f162e268c58cd5d617a/html5/thumbnails/37.jpg)
National income accountsReal GDP
Shortcomings of GDP
Types of MeasuresGross domestic product
What’s not counted? 7/ 22
Non-production transactions: transactions that do not involveproduction of a good.
Financial transactions
Public transfer payments such as social security payments andveterans payments.Private transfer payments such as gifts between familymembers.Stock market transactions.
Secondhand transactions: contribute nothing to production,just moving ownership of final goods between people.
ECO 120 Global Macroeconomics Unit 4: Measuring GDP and Prices
![Page 38: Chapter 5: Measuring GDP and Prices - James Murray | Department of](https://reader031.vdocuments.net/reader031/viewer/2022020704/61fb5f162e268c58cd5d617a/html5/thumbnails/38.jpg)
National income accountsReal GDP
Shortcomings of GDP
Types of MeasuresGross domestic product
What’s not counted? 7/ 22
Non-production transactions: transactions that do not involveproduction of a good.
Financial transactions
Public transfer payments such as social security payments andveterans payments.Private transfer payments such as gifts between familymembers.Stock market transactions.
Secondhand transactions: contribute nothing to production,just moving ownership of final goods between people.
ECO 120 Global Macroeconomics Unit 4: Measuring GDP and Prices
![Page 39: Chapter 5: Measuring GDP and Prices - James Murray | Department of](https://reader031.vdocuments.net/reader031/viewer/2022020704/61fb5f162e268c58cd5d617a/html5/thumbnails/39.jpg)
National income accountsReal GDP
Shortcomings of GDP
Types of MeasuresGross domestic product
What’s not counted? 7/ 22
Non-production transactions: transactions that do not involveproduction of a good.
Financial transactions
Public transfer payments such as social security payments andveterans payments.Private transfer payments such as gifts between familymembers.Stock market transactions.
Secondhand transactions: contribute nothing to production,just moving ownership of final goods between people.
ECO 120 Global Macroeconomics Unit 4: Measuring GDP and Prices
![Page 40: Chapter 5: Measuring GDP and Prices - James Murray | Department of](https://reader031.vdocuments.net/reader031/viewer/2022020704/61fb5f162e268c58cd5d617a/html5/thumbnails/40.jpg)
National income accountsReal GDP
Shortcomings of GDP
Types of MeasuresGross domestic product
What’s not counted? 7/ 22
Non-production transactions: transactions that do not involveproduction of a good.
Financial transactions
Public transfer payments such as social security payments andveterans payments.Private transfer payments such as gifts between familymembers.Stock market transactions.
Secondhand transactions: contribute nothing to production,just moving ownership of final goods between people.
ECO 120 Global Macroeconomics Unit 4: Measuring GDP and Prices
![Page 41: Chapter 5: Measuring GDP and Prices - James Murray | Department of](https://reader031.vdocuments.net/reader031/viewer/2022020704/61fb5f162e268c58cd5d617a/html5/thumbnails/41.jpg)
National income accountsReal GDP
Shortcomings of GDP
Types of MeasuresGross domestic product
Expenditure approach 8/ 22
Expenditure approach: method of computing GDP byadding up all expenditures of final goods and services.
Consumption: consumption expenditures of households.
Investment: purchases of capital goods by firms.
Government purchases.
Net exports.
ECO 120 Global Macroeconomics Unit 4: Measuring GDP and Prices
![Page 42: Chapter 5: Measuring GDP and Prices - James Murray | Department of](https://reader031.vdocuments.net/reader031/viewer/2022020704/61fb5f162e268c58cd5d617a/html5/thumbnails/42.jpg)
National income accountsReal GDP
Shortcomings of GDP
Types of MeasuresGross domestic product
Expenditure approach 8/ 22
Expenditure approach: method of computing GDP byadding up all expenditures of final goods and services.
Consumption: consumption expenditures of households.
Investment: purchases of capital goods by firms.
Government purchases.
Net exports.
ECO 120 Global Macroeconomics Unit 4: Measuring GDP and Prices
![Page 43: Chapter 5: Measuring GDP and Prices - James Murray | Department of](https://reader031.vdocuments.net/reader031/viewer/2022020704/61fb5f162e268c58cd5d617a/html5/thumbnails/43.jpg)
National income accountsReal GDP
Shortcomings of GDP
Types of MeasuresGross domestic product
Expenditure approach 8/ 22
Expenditure approach: method of computing GDP byadding up all expenditures of final goods and services.
Consumption: consumption expenditures of households.
Investment: purchases of capital goods by firms.
Government purchases.
Net exports.
ECO 120 Global Macroeconomics Unit 4: Measuring GDP and Prices
![Page 44: Chapter 5: Measuring GDP and Prices - James Murray | Department of](https://reader031.vdocuments.net/reader031/viewer/2022020704/61fb5f162e268c58cd5d617a/html5/thumbnails/44.jpg)
National income accountsReal GDP
Shortcomings of GDP
Types of MeasuresGross domestic product
Expenditure approach 8/ 22
Expenditure approach: method of computing GDP byadding up all expenditures of final goods and services.
Consumption: consumption expenditures of households.
Investment: purchases of capital goods by firms.
Government purchases.
Net exports.
ECO 120 Global Macroeconomics Unit 4: Measuring GDP and Prices
![Page 45: Chapter 5: Measuring GDP and Prices - James Murray | Department of](https://reader031.vdocuments.net/reader031/viewer/2022020704/61fb5f162e268c58cd5d617a/html5/thumbnails/45.jpg)
National income accountsReal GDP
Shortcomings of GDP
Types of MeasuresGross domestic product
Expenditure approach 8/ 22
Expenditure approach: method of computing GDP byadding up all expenditures of final goods and services.
Consumption: consumption expenditures of households.
Investment: purchases of capital goods by firms.
Government purchases.
Net exports.
ECO 120 Global Macroeconomics Unit 4: Measuring GDP and Prices
![Page 46: Chapter 5: Measuring GDP and Prices - James Murray | Department of](https://reader031.vdocuments.net/reader031/viewer/2022020704/61fb5f162e268c58cd5d617a/html5/thumbnails/46.jpg)
National income accountsReal GDP
Shortcomings of GDP
Types of MeasuresGross domestic product
Investment 9/ 22
Gross private domestic investmentMost important: Capital - final purchases of machinery,equipment, and tools.All construction: includes construction of new offices,factories, and residential houses.Changes in inventories: “unsold” output (not counted inconsumption, because never purchased).
Net private domestic investment = gross private domesticinvestment - depreciation.
Depreciation: every day some old investment goods needrepair or replacement.
ECO 120 Global Macroeconomics Unit 4: Measuring GDP and Prices
![Page 47: Chapter 5: Measuring GDP and Prices - James Murray | Department of](https://reader031.vdocuments.net/reader031/viewer/2022020704/61fb5f162e268c58cd5d617a/html5/thumbnails/47.jpg)
National income accountsReal GDP
Shortcomings of GDP
Types of MeasuresGross domestic product
Investment 9/ 22
Gross private domestic investmentMost important: Capital - final purchases of machinery,equipment, and tools.All construction: includes construction of new offices,factories, and residential houses.Changes in inventories: “unsold” output (not counted inconsumption, because never purchased).
Net private domestic investment = gross private domesticinvestment - depreciation.
Depreciation: every day some old investment goods needrepair or replacement.
ECO 120 Global Macroeconomics Unit 4: Measuring GDP and Prices
![Page 48: Chapter 5: Measuring GDP and Prices - James Murray | Department of](https://reader031.vdocuments.net/reader031/viewer/2022020704/61fb5f162e268c58cd5d617a/html5/thumbnails/48.jpg)
National income accountsReal GDP
Shortcomings of GDP
Types of MeasuresGross domestic product
Investment 9/ 22
Gross private domestic investmentMost important: Capital - final purchases of machinery,equipment, and tools.All construction: includes construction of new offices,factories, and residential houses.Changes in inventories: “unsold” output (not counted inconsumption, because never purchased).
Net private domestic investment = gross private domesticinvestment - depreciation.
Depreciation: every day some old investment goods needrepair or replacement.
ECO 120 Global Macroeconomics Unit 4: Measuring GDP and Prices
![Page 49: Chapter 5: Measuring GDP and Prices - James Murray | Department of](https://reader031.vdocuments.net/reader031/viewer/2022020704/61fb5f162e268c58cd5d617a/html5/thumbnails/49.jpg)
National income accountsReal GDP
Shortcomings of GDP
Types of MeasuresGross domestic product
Investment 9/ 22
Gross private domestic investmentMost important: Capital - final purchases of machinery,equipment, and tools.All construction: includes construction of new offices,factories, and residential houses.Changes in inventories: “unsold” output (not counted inconsumption, because never purchased).
Net private domestic investment = gross private domesticinvestment - depreciation.
Depreciation: every day some old investment goods needrepair or replacement.
ECO 120 Global Macroeconomics Unit 4: Measuring GDP and Prices
![Page 50: Chapter 5: Measuring GDP and Prices - James Murray | Department of](https://reader031.vdocuments.net/reader031/viewer/2022020704/61fb5f162e268c58cd5d617a/html5/thumbnails/50.jpg)
National income accountsReal GDP
Shortcomings of GDP
Types of MeasuresGross domestic product
Investment 9/ 22
Gross private domestic investmentMost important: Capital - final purchases of machinery,equipment, and tools.All construction: includes construction of new offices,factories, and residential houses.Changes in inventories: “unsold” output (not counted inconsumption, because never purchased).
Net private domestic investment = gross private domesticinvestment - depreciation.
Depreciation: every day some old investment goods needrepair or replacement.
ECO 120 Global Macroeconomics Unit 4: Measuring GDP and Prices
![Page 51: Chapter 5: Measuring GDP and Prices - James Murray | Department of](https://reader031.vdocuments.net/reader031/viewer/2022020704/61fb5f162e268c58cd5d617a/html5/thumbnails/51.jpg)
National income accountsReal GDP
Shortcomings of GDP
Types of MeasuresGross domestic product
Investment 9/ 22
Gross private domestic investmentMost important: Capital - final purchases of machinery,equipment, and tools.All construction: includes construction of new offices,factories, and residential houses.Changes in inventories: “unsold” output (not counted inconsumption, because never purchased).
Net private domestic investment = gross private domesticinvestment - depreciation.
Depreciation: every day some old investment goods needrepair or replacement.
ECO 120 Global Macroeconomics Unit 4: Measuring GDP and Prices
![Page 52: Chapter 5: Measuring GDP and Prices - James Murray | Department of](https://reader031.vdocuments.net/reader031/viewer/2022020704/61fb5f162e268c58cd5d617a/html5/thumbnails/52.jpg)
National income accountsReal GDP
Shortcomings of GDP
Types of MeasuresGross domestic product
Net exports 10/ 22
Net exports = exports - imports.
Export goods are produced in the U.S. and consumed outsidethe U.S.
Imports are subtracted
Some things in consumption, investment, and governmentspending may have been imported (not produced in U.S.).Subtracting imports from exports results in a net quantity ofgoods produced in the U.S. that are sold outside the U.S.
ECO 120 Global Macroeconomics Unit 4: Measuring GDP and Prices
![Page 53: Chapter 5: Measuring GDP and Prices - James Murray | Department of](https://reader031.vdocuments.net/reader031/viewer/2022020704/61fb5f162e268c58cd5d617a/html5/thumbnails/53.jpg)
National income accountsReal GDP
Shortcomings of GDP
Types of MeasuresGross domestic product
Net exports 10/ 22
Net exports = exports - imports.
Export goods are produced in the U.S. and consumed outsidethe U.S.
Imports are subtracted
Some things in consumption, investment, and governmentspending may have been imported (not produced in U.S.).Subtracting imports from exports results in a net quantity ofgoods produced in the U.S. that are sold outside the U.S.
ECO 120 Global Macroeconomics Unit 4: Measuring GDP and Prices
![Page 54: Chapter 5: Measuring GDP and Prices - James Murray | Department of](https://reader031.vdocuments.net/reader031/viewer/2022020704/61fb5f162e268c58cd5d617a/html5/thumbnails/54.jpg)
National income accountsReal GDP
Shortcomings of GDP
Types of MeasuresGross domestic product
Net exports 10/ 22
Net exports = exports - imports.
Export goods are produced in the U.S. and consumed outsidethe U.S.
Imports are subtracted
Some things in consumption, investment, and governmentspending may have been imported (not produced in U.S.).Subtracting imports from exports results in a net quantity ofgoods produced in the U.S. that are sold outside the U.S.
ECO 120 Global Macroeconomics Unit 4: Measuring GDP and Prices
![Page 55: Chapter 5: Measuring GDP and Prices - James Murray | Department of](https://reader031.vdocuments.net/reader031/viewer/2022020704/61fb5f162e268c58cd5d617a/html5/thumbnails/55.jpg)
National income accountsReal GDP
Shortcomings of GDP
Types of MeasuresGross domestic product
Net exports 10/ 22
Net exports = exports - imports.
Export goods are produced in the U.S. and consumed outsidethe U.S.
Imports are subtracted
Some things in consumption, investment, and governmentspending may have been imported (not produced in U.S.).Subtracting imports from exports results in a net quantity ofgoods produced in the U.S. that are sold outside the U.S.
ECO 120 Global Macroeconomics Unit 4: Measuring GDP and Prices
![Page 56: Chapter 5: Measuring GDP and Prices - James Murray | Department of](https://reader031.vdocuments.net/reader031/viewer/2022020704/61fb5f162e268c58cd5d617a/html5/thumbnails/56.jpg)
National income accountsReal GDP
Shortcomings of GDP
Types of MeasuresGross domestic product
Net exports 10/ 22
Net exports = exports - imports.
Export goods are produced in the U.S. and consumed outsidethe U.S.
Imports are subtracted
Some things in consumption, investment, and governmentspending may have been imported (not produced in U.S.).Subtracting imports from exports results in a net quantity ofgoods produced in the U.S. that are sold outside the U.S.
ECO 120 Global Macroeconomics Unit 4: Measuring GDP and Prices
![Page 57: Chapter 5: Measuring GDP and Prices - James Murray | Department of](https://reader031.vdocuments.net/reader031/viewer/2022020704/61fb5f162e268c58cd5d617a/html5/thumbnails/57.jpg)
National income accountsReal GDP
Shortcomings of GDP
Types of MeasuresGross domestic product
Gross domestic product 11/ 22
Expenditure approach leads to the equation:
Y = C + I + G + X −M
Y: Total Output ≡ GDP.
C: Private Consumption
I: investment
G: Government Spending
X: Exports
M: Imports
ECO 120 Global Macroeconomics Unit 4: Measuring GDP and Prices
![Page 58: Chapter 5: Measuring GDP and Prices - James Murray | Department of](https://reader031.vdocuments.net/reader031/viewer/2022020704/61fb5f162e268c58cd5d617a/html5/thumbnails/58.jpg)
National income accountsReal GDP
Shortcomings of GDP
Types of MeasuresGross domestic product
Income approach 12/ 22
Income approach: another method of computing GDP, addup total income.
National income is composed of:
Compensation of employees (income earned from labor)Rent (income earned from owning land)Interest (income earned from owning capital)Proprietors’ income (income earned from organizingproduction)Corporate profits (income earned from organizing production)
National income is almost equal to GDP.
Requires some statistical adjustments (corporate income taxes,undistributed corporate profits)
ECO 120 Global Macroeconomics Unit 4: Measuring GDP and Prices
![Page 59: Chapter 5: Measuring GDP and Prices - James Murray | Department of](https://reader031.vdocuments.net/reader031/viewer/2022020704/61fb5f162e268c58cd5d617a/html5/thumbnails/59.jpg)
National income accountsReal GDP
Shortcomings of GDP
Types of MeasuresGross domestic product
Income approach 12/ 22
Income approach: another method of computing GDP, addup total income.
National income is composed of:
Compensation of employees (income earned from labor)Rent (income earned from owning land)Interest (income earned from owning capital)Proprietors’ income (income earned from organizingproduction)Corporate profits (income earned from organizing production)
National income is almost equal to GDP.
Requires some statistical adjustments (corporate income taxes,undistributed corporate profits)
ECO 120 Global Macroeconomics Unit 4: Measuring GDP and Prices
![Page 60: Chapter 5: Measuring GDP and Prices - James Murray | Department of](https://reader031.vdocuments.net/reader031/viewer/2022020704/61fb5f162e268c58cd5d617a/html5/thumbnails/60.jpg)
National income accountsReal GDP
Shortcomings of GDP
Types of MeasuresGross domestic product
Income approach 12/ 22
Income approach: another method of computing GDP, addup total income.
National income is composed of:
Compensation of employees (income earned from labor)Rent (income earned from owning land)Interest (income earned from owning capital)Proprietors’ income (income earned from organizingproduction)Corporate profits (income earned from organizing production)
National income is almost equal to GDP.
Requires some statistical adjustments (corporate income taxes,undistributed corporate profits)
ECO 120 Global Macroeconomics Unit 4: Measuring GDP and Prices
![Page 61: Chapter 5: Measuring GDP and Prices - James Murray | Department of](https://reader031.vdocuments.net/reader031/viewer/2022020704/61fb5f162e268c58cd5d617a/html5/thumbnails/61.jpg)
National income accountsReal GDP
Shortcomings of GDP
Types of MeasuresGross domestic product
Income approach 12/ 22
Income approach: another method of computing GDP, addup total income.
National income is composed of:
Compensation of employees (income earned from labor)Rent (income earned from owning land)Interest (income earned from owning capital)Proprietors’ income (income earned from organizingproduction)Corporate profits (income earned from organizing production)
National income is almost equal to GDP.
Requires some statistical adjustments (corporate income taxes,undistributed corporate profits)
ECO 120 Global Macroeconomics Unit 4: Measuring GDP and Prices
![Page 62: Chapter 5: Measuring GDP and Prices - James Murray | Department of](https://reader031.vdocuments.net/reader031/viewer/2022020704/61fb5f162e268c58cd5d617a/html5/thumbnails/62.jpg)
National income accountsReal GDP
Shortcomings of GDP
Types of MeasuresGross domestic product
Income approach 12/ 22
Income approach: another method of computing GDP, addup total income.
National income is composed of:
Compensation of employees (income earned from labor)Rent (income earned from owning land)Interest (income earned from owning capital)Proprietors’ income (income earned from organizingproduction)Corporate profits (income earned from organizing production)
National income is almost equal to GDP.
Requires some statistical adjustments (corporate income taxes,undistributed corporate profits)
ECO 120 Global Macroeconomics Unit 4: Measuring GDP and Prices
![Page 63: Chapter 5: Measuring GDP and Prices - James Murray | Department of](https://reader031.vdocuments.net/reader031/viewer/2022020704/61fb5f162e268c58cd5d617a/html5/thumbnails/63.jpg)
National income accountsReal GDP
Shortcomings of GDP
Types of MeasuresGross domestic product
Income approach 12/ 22
Income approach: another method of computing GDP, addup total income.
National income is composed of:
Compensation of employees (income earned from labor)Rent (income earned from owning land)Interest (income earned from owning capital)Proprietors’ income (income earned from organizingproduction)Corporate profits (income earned from organizing production)
National income is almost equal to GDP.
Requires some statistical adjustments (corporate income taxes,undistributed corporate profits)
ECO 120 Global Macroeconomics Unit 4: Measuring GDP and Prices
![Page 64: Chapter 5: Measuring GDP and Prices - James Murray | Department of](https://reader031.vdocuments.net/reader031/viewer/2022020704/61fb5f162e268c58cd5d617a/html5/thumbnails/64.jpg)
National income accountsReal GDP
Shortcomings of GDP
Types of MeasuresGross domestic product
Income approach 12/ 22
Income approach: another method of computing GDP, addup total income.
National income is composed of:
Compensation of employees (income earned from labor)Rent (income earned from owning land)Interest (income earned from owning capital)Proprietors’ income (income earned from organizingproduction)Corporate profits (income earned from organizing production)
National income is almost equal to GDP.
Requires some statistical adjustments (corporate income taxes,undistributed corporate profits)
ECO 120 Global Macroeconomics Unit 4: Measuring GDP and Prices
![Page 65: Chapter 5: Measuring GDP and Prices - James Murray | Department of](https://reader031.vdocuments.net/reader031/viewer/2022020704/61fb5f162e268c58cd5d617a/html5/thumbnails/65.jpg)
National income accountsReal GDP
Shortcomings of GDP
Types of MeasuresGross domestic product
Income approach 12/ 22
Income approach: another method of computing GDP, addup total income.
National income is composed of:
Compensation of employees (income earned from labor)Rent (income earned from owning land)Interest (income earned from owning capital)Proprietors’ income (income earned from organizingproduction)Corporate profits (income earned from organizing production)
National income is almost equal to GDP.
Requires some statistical adjustments (corporate income taxes,undistributed corporate profits)
ECO 120 Global Macroeconomics Unit 4: Measuring GDP and Prices
![Page 66: Chapter 5: Measuring GDP and Prices - James Murray | Department of](https://reader031.vdocuments.net/reader031/viewer/2022020704/61fb5f162e268c58cd5d617a/html5/thumbnails/66.jpg)
National income accountsReal GDP
Shortcomings of GDP
Types of MeasuresGross domestic product
Income approach 12/ 22
Income approach: another method of computing GDP, addup total income.
National income is composed of:
Compensation of employees (income earned from labor)Rent (income earned from owning land)Interest (income earned from owning capital)Proprietors’ income (income earned from organizingproduction)Corporate profits (income earned from organizing production)
National income is almost equal to GDP.
Requires some statistical adjustments (corporate income taxes,undistributed corporate profits)
ECO 120 Global Macroeconomics Unit 4: Measuring GDP and Prices
![Page 67: Chapter 5: Measuring GDP and Prices - James Murray | Department of](https://reader031.vdocuments.net/reader031/viewer/2022020704/61fb5f162e268c58cd5d617a/html5/thumbnails/67.jpg)
National income accountsReal GDP
Shortcomings of GDP
Types of MeasuresGross domestic product
Disposable Income 13/ 22
Personal income = National income1 minus social security payments2 minus corporate income taxes3 minus undistributed corporate profits4 plus transfer payments
Disposable income = Personal income - personal taxes.
Often, macroeconomists abstract from many of theseadjustments and say:
Disposable income ≈ GDP − Personal Taxes
ECO 120 Global Macroeconomics Unit 4: Measuring GDP and Prices
![Page 68: Chapter 5: Measuring GDP and Prices - James Murray | Department of](https://reader031.vdocuments.net/reader031/viewer/2022020704/61fb5f162e268c58cd5d617a/html5/thumbnails/68.jpg)
National income accountsReal GDP
Shortcomings of GDP
Types of MeasuresGross domestic product
Disposable Income 13/ 22
Personal income = National income1 minus social security payments2 minus corporate income taxes3 minus undistributed corporate profits4 plus transfer payments
Disposable income = Personal income - personal taxes.
Often, macroeconomists abstract from many of theseadjustments and say:
Disposable income ≈ GDP − Personal Taxes
ECO 120 Global Macroeconomics Unit 4: Measuring GDP and Prices
![Page 69: Chapter 5: Measuring GDP and Prices - James Murray | Department of](https://reader031.vdocuments.net/reader031/viewer/2022020704/61fb5f162e268c58cd5d617a/html5/thumbnails/69.jpg)
National income accountsReal GDP
Shortcomings of GDP
Types of MeasuresGross domestic product
Disposable Income 13/ 22
Personal income = National income1 minus social security payments2 minus corporate income taxes3 minus undistributed corporate profits4 plus transfer payments
Disposable income = Personal income - personal taxes.
Often, macroeconomists abstract from many of theseadjustments and say:
Disposable income ≈ GDP − Personal Taxes
ECO 120 Global Macroeconomics Unit 4: Measuring GDP and Prices
![Page 70: Chapter 5: Measuring GDP and Prices - James Murray | Department of](https://reader031.vdocuments.net/reader031/viewer/2022020704/61fb5f162e268c58cd5d617a/html5/thumbnails/70.jpg)
National income accountsReal GDP
Shortcomings of GDP
Types of MeasuresGross domestic product
Disposable Income 13/ 22
Personal income = National income1 minus social security payments2 minus corporate income taxes3 minus undistributed corporate profits4 plus transfer payments
Disposable income = Personal income - personal taxes.
Often, macroeconomists abstract from many of theseadjustments and say:
Disposable income ≈ GDP − Personal Taxes
ECO 120 Global Macroeconomics Unit 4: Measuring GDP and Prices
![Page 71: Chapter 5: Measuring GDP and Prices - James Murray | Department of](https://reader031.vdocuments.net/reader031/viewer/2022020704/61fb5f162e268c58cd5d617a/html5/thumbnails/71.jpg)
National income accountsReal GDP
Shortcomings of GDP
Types of MeasuresGross domestic product
Disposable Income 13/ 22
Personal income = National income1 minus social security payments2 minus corporate income taxes3 minus undistributed corporate profits4 plus transfer payments
Disposable income = Personal income - personal taxes.
Often, macroeconomists abstract from many of theseadjustments and say:
Disposable income ≈ GDP − Personal Taxes
ECO 120 Global Macroeconomics Unit 4: Measuring GDP and Prices
![Page 72: Chapter 5: Measuring GDP and Prices - James Murray | Department of](https://reader031.vdocuments.net/reader031/viewer/2022020704/61fb5f162e268c58cd5d617a/html5/thumbnails/72.jpg)
National income accountsReal GDP
Shortcomings of GDP
Types of MeasuresGross domestic product
Disposable Income 13/ 22
Personal income = National income1 minus social security payments2 minus corporate income taxes3 minus undistributed corporate profits4 plus transfer payments
Disposable income = Personal income - personal taxes.
Often, macroeconomists abstract from many of theseadjustments and say:
Disposable income ≈ GDP − Personal Taxes
ECO 120 Global Macroeconomics Unit 4: Measuring GDP and Prices
![Page 73: Chapter 5: Measuring GDP and Prices - James Murray | Department of](https://reader031.vdocuments.net/reader031/viewer/2022020704/61fb5f162e268c58cd5d617a/html5/thumbnails/73.jpg)
National income accountsReal GDP
Shortcomings of GDP
Types of MeasuresGross domestic product
Disposable Income 13/ 22
Personal income = National income1 minus social security payments2 minus corporate income taxes3 minus undistributed corporate profits4 plus transfer payments
Disposable income = Personal income - personal taxes.
Often, macroeconomists abstract from many of theseadjustments and say:
Disposable income ≈ GDP − Personal Taxes
ECO 120 Global Macroeconomics Unit 4: Measuring GDP and Prices
![Page 74: Chapter 5: Measuring GDP and Prices - James Murray | Department of](https://reader031.vdocuments.net/reader031/viewer/2022020704/61fb5f162e268c58cd5d617a/html5/thumbnails/74.jpg)
National income accountsReal GDP
Shortcomings of GDP
Real vs. Nominal GDPComputing GDPCalculating the Price Level
Nominal vs. Real GDP 14/ 22
Problem with GDP calculation is that it measures marketvalue of goods and services.
Prices may increase, but production stay the same.
Nominal GDP: (unadjusted) GDP calculation using pricesthat prevailed when output was produced.
Real GDP: GDP calculation that is adjusted for changes inprices.
A single measure of the quantity of all final goods and services.
ECO 120 Global Macroeconomics Unit 4: Measuring GDP and Prices
![Page 75: Chapter 5: Measuring GDP and Prices - James Murray | Department of](https://reader031.vdocuments.net/reader031/viewer/2022020704/61fb5f162e268c58cd5d617a/html5/thumbnails/75.jpg)
National income accountsReal GDP
Shortcomings of GDP
Real vs. Nominal GDPComputing GDPCalculating the Price Level
Nominal vs. Real GDP 14/ 22
Problem with GDP calculation is that it measures marketvalue of goods and services.
Prices may increase, but production stay the same.
Nominal GDP: (unadjusted) GDP calculation using pricesthat prevailed when output was produced.
Real GDP: GDP calculation that is adjusted for changes inprices.
A single measure of the quantity of all final goods and services.
ECO 120 Global Macroeconomics Unit 4: Measuring GDP and Prices
![Page 76: Chapter 5: Measuring GDP and Prices - James Murray | Department of](https://reader031.vdocuments.net/reader031/viewer/2022020704/61fb5f162e268c58cd5d617a/html5/thumbnails/76.jpg)
National income accountsReal GDP
Shortcomings of GDP
Real vs. Nominal GDPComputing GDPCalculating the Price Level
Nominal vs. Real GDP 14/ 22
Problem with GDP calculation is that it measures marketvalue of goods and services.
Prices may increase, but production stay the same.
Nominal GDP: (unadjusted) GDP calculation using pricesthat prevailed when output was produced.
Real GDP: GDP calculation that is adjusted for changes inprices.
A single measure of the quantity of all final goods and services.
ECO 120 Global Macroeconomics Unit 4: Measuring GDP and Prices
![Page 77: Chapter 5: Measuring GDP and Prices - James Murray | Department of](https://reader031.vdocuments.net/reader031/viewer/2022020704/61fb5f162e268c58cd5d617a/html5/thumbnails/77.jpg)
National income accountsReal GDP
Shortcomings of GDP
Real vs. Nominal GDPComputing GDPCalculating the Price Level
Nominal vs. Real GDP 14/ 22
Problem with GDP calculation is that it measures marketvalue of goods and services.
Prices may increase, but production stay the same.
Nominal GDP: (unadjusted) GDP calculation using pricesthat prevailed when output was produced.
Real GDP: GDP calculation that is adjusted for changes inprices.
A single measure of the quantity of all final goods and services.
ECO 120 Global Macroeconomics Unit 4: Measuring GDP and Prices
![Page 78: Chapter 5: Measuring GDP and Prices - James Murray | Department of](https://reader031.vdocuments.net/reader031/viewer/2022020704/61fb5f162e268c58cd5d617a/html5/thumbnails/78.jpg)
National income accountsReal GDP
Shortcomings of GDP
Real vs. Nominal GDPComputing GDPCalculating the Price Level
Nominal vs. Real GDP 14/ 22
Problem with GDP calculation is that it measures marketvalue of goods and services.
Prices may increase, but production stay the same.
Nominal GDP: (unadjusted) GDP calculation using pricesthat prevailed when output was produced.
Real GDP: GDP calculation that is adjusted for changes inprices.
A single measure of the quantity of all final goods and services.
ECO 120 Global Macroeconomics Unit 4: Measuring GDP and Prices
![Page 79: Chapter 5: Measuring GDP and Prices - James Murray | Department of](https://reader031.vdocuments.net/reader031/viewer/2022020704/61fb5f162e268c58cd5d617a/html5/thumbnails/79.jpg)
National income accountsReal GDP
Shortcomings of GDP
Real vs. Nominal GDPComputing GDPCalculating the Price Level
Calculating Real GDP 15/ 22
Don’t use current year prices to compute real GDP.
Use prices from a chosen base year.
Example:
Suppose only two goods: Brats and CheeseLet’s use 2005 as a base year, compute real GDP for 2006
Real GDP2006 = PBrats,2005QBrats,2006 + PCheese,2005QCheese,2006
ECO 120 Global Macroeconomics Unit 4: Measuring GDP and Prices
![Page 80: Chapter 5: Measuring GDP and Prices - James Murray | Department of](https://reader031.vdocuments.net/reader031/viewer/2022020704/61fb5f162e268c58cd5d617a/html5/thumbnails/80.jpg)
National income accountsReal GDP
Shortcomings of GDP
Real vs. Nominal GDPComputing GDPCalculating the Price Level
Calculating Real GDP 15/ 22
Don’t use current year prices to compute real GDP.
Use prices from a chosen base year.
Example:
Suppose only two goods: Brats and CheeseLet’s use 2005 as a base year, compute real GDP for 2006
Real GDP2006 = PBrats,2005QBrats,2006 + PCheese,2005QCheese,2006
ECO 120 Global Macroeconomics Unit 4: Measuring GDP and Prices
![Page 81: Chapter 5: Measuring GDP and Prices - James Murray | Department of](https://reader031.vdocuments.net/reader031/viewer/2022020704/61fb5f162e268c58cd5d617a/html5/thumbnails/81.jpg)
National income accountsReal GDP
Shortcomings of GDP
Real vs. Nominal GDPComputing GDPCalculating the Price Level
Calculating Real GDP 15/ 22
Don’t use current year prices to compute real GDP.
Use prices from a chosen base year.
Example:
Suppose only two goods: Brats and CheeseLet’s use 2005 as a base year, compute real GDP for 2006
Real GDP2006 = PBrats,2005QBrats,2006 + PCheese,2005QCheese,2006
ECO 120 Global Macroeconomics Unit 4: Measuring GDP and Prices
![Page 82: Chapter 5: Measuring GDP and Prices - James Murray | Department of](https://reader031.vdocuments.net/reader031/viewer/2022020704/61fb5f162e268c58cd5d617a/html5/thumbnails/82.jpg)
National income accountsReal GDP
Shortcomings of GDP
Real vs. Nominal GDPComputing GDPCalculating the Price Level
Calculating Real GDP 15/ 22
Don’t use current year prices to compute real GDP.
Use prices from a chosen base year.
Example:
Suppose only two goods: Brats and CheeseLet’s use 2005 as a base year, compute real GDP for 2006
Real GDP2006 = PBrats,2005QBrats,2006 + PCheese,2005QCheese,2006
ECO 120 Global Macroeconomics Unit 4: Measuring GDP and Prices
![Page 83: Chapter 5: Measuring GDP and Prices - James Murray | Department of](https://reader031.vdocuments.net/reader031/viewer/2022020704/61fb5f162e268c58cd5d617a/html5/thumbnails/83.jpg)
National income accountsReal GDP
Shortcomings of GDP
Real vs. Nominal GDPComputing GDPCalculating the Price Level
Example: Nominal GDP 16/ 22
Year 2005Item Quantity Price
Brats 100 $1.00Cheese 20 $5.00
Year 2006Item Quantity Price
Brats 150 $2.00Cheese 25 $7.00
Nominal GDP2005 =100($1) + 20($5) = 200
Nominal GDP2006 =150($2) + 25($7) = 475
ECO 120 Global Macroeconomics Unit 4: Measuring GDP and Prices
![Page 84: Chapter 5: Measuring GDP and Prices - James Murray | Department of](https://reader031.vdocuments.net/reader031/viewer/2022020704/61fb5f162e268c58cd5d617a/html5/thumbnails/84.jpg)
National income accountsReal GDP
Shortcomings of GDP
Real vs. Nominal GDPComputing GDPCalculating the Price Level
Example: Nominal GDP 16/ 22
Year 2005Item Quantity Price
Brats 100 $1.00Cheese 20 $5.00
Year 2006Item Quantity Price
Brats 150 $2.00Cheese 25 $7.00
Nominal GDP2005 =100($1) + 20($5) = 200
Nominal GDP2006 =150($2) + 25($7) = 475
ECO 120 Global Macroeconomics Unit 4: Measuring GDP and Prices
![Page 85: Chapter 5: Measuring GDP and Prices - James Murray | Department of](https://reader031.vdocuments.net/reader031/viewer/2022020704/61fb5f162e268c58cd5d617a/html5/thumbnails/85.jpg)
National income accountsReal GDP
Shortcomings of GDP
Real vs. Nominal GDPComputing GDPCalculating the Price Level
Example: Real GDP 17/ 22
Year 2005Item Quantity Price
Brats 100 $1.00Cheese 20 $5.00
Year 2006Item Quantity Price
Brats 150 $2.00Cheese 25 $7.00
Real GDP using 2005 as abase year.
Real GDP2005 =100($1) + 20($5) = 200
Real GDP2006 =150($1) + 25($5) = 275
What is real GDP growth?
Real GDP Growth = 275−200200
= 0.375 = 37.5%
ECO 120 Global Macroeconomics Unit 4: Measuring GDP and Prices
![Page 86: Chapter 5: Measuring GDP and Prices - James Murray | Department of](https://reader031.vdocuments.net/reader031/viewer/2022020704/61fb5f162e268c58cd5d617a/html5/thumbnails/86.jpg)
National income accountsReal GDP
Shortcomings of GDP
Real vs. Nominal GDPComputing GDPCalculating the Price Level
Example: Real GDP 17/ 22
Year 2005Item Quantity Price
Brats 100 $1.00Cheese 20 $5.00
Year 2006Item Quantity Price
Brats 150 $2.00Cheese 25 $7.00
Real GDP using 2005 as abase year.
Real GDP2005 =100($1) + 20($5) = 200
Real GDP2006 =150($1) + 25($5) = 275
What is real GDP growth?
Real GDP Growth = 275−200200
= 0.375 = 37.5%
ECO 120 Global Macroeconomics Unit 4: Measuring GDP and Prices
![Page 87: Chapter 5: Measuring GDP and Prices - James Murray | Department of](https://reader031.vdocuments.net/reader031/viewer/2022020704/61fb5f162e268c58cd5d617a/html5/thumbnails/87.jpg)
National income accountsReal GDP
Shortcomings of GDP
Real vs. Nominal GDPComputing GDPCalculating the Price Level
Example: Real GDP 17/ 22
Year 2005Item Quantity Price
Brats 100 $1.00Cheese 20 $5.00
Year 2006Item Quantity Price
Brats 150 $2.00Cheese 25 $7.00
Real GDP using 2005 as abase year.
Real GDP2005 =100($1) + 20($5) = 200
Real GDP2006 =150($1) + 25($5) = 275
What is real GDP growth?
Real GDP Growth = 275−200200
= 0.375 = 37.5%
ECO 120 Global Macroeconomics Unit 4: Measuring GDP and Prices
![Page 88: Chapter 5: Measuring GDP and Prices - James Murray | Department of](https://reader031.vdocuments.net/reader031/viewer/2022020704/61fb5f162e268c58cd5d617a/html5/thumbnails/88.jpg)
National income accountsReal GDP
Shortcomings of GDP
Real vs. Nominal GDPComputing GDPCalculating the Price Level
Example: Real GDP 17/ 22
Year 2005Item Quantity Price
Brats 100 $1.00Cheese 20 $5.00
Year 2006Item Quantity Price
Brats 150 $2.00Cheese 25 $7.00
Real GDP using 2005 as abase year.
Real GDP2005 =100($1) + 20($5) = 200
Real GDP2006 =150($1) + 25($5) = 275
What is real GDP growth?
Real GDP Growth = 275−200200
= 0.375 = 37.5%
ECO 120 Global Macroeconomics Unit 4: Measuring GDP and Prices
![Page 89: Chapter 5: Measuring GDP and Prices - James Murray | Department of](https://reader031.vdocuments.net/reader031/viewer/2022020704/61fb5f162e268c58cd5d617a/html5/thumbnails/89.jpg)
National income accountsReal GDP
Shortcomings of GDP
Real vs. Nominal GDPComputing GDPCalculating the Price Level
Example: Real GDP 17/ 22
Year 2005Item Quantity Price
Brats 100 $1.00Cheese 20 $5.00
Year 2006Item Quantity Price
Brats 150 $2.00Cheese 25 $7.00
Real GDP using 2005 as abase year.
Real GDP2005 =100($1) + 20($5) = 200
Real GDP2006 =150($1) + 25($5) = 275
What is real GDP growth?
Real GDP Growth = 275−200200
= 0.375 = 37.5%
ECO 120 Global Macroeconomics Unit 4: Measuring GDP and Prices
![Page 90: Chapter 5: Measuring GDP and Prices - James Murray | Department of](https://reader031.vdocuments.net/reader031/viewer/2022020704/61fb5f162e268c58cd5d617a/html5/thumbnails/90.jpg)
National income accountsReal GDP
Shortcomings of GDP
Real vs. Nominal GDPComputing GDPCalculating the Price Level
Example: Real GDP 18/ 22
Year 2005Item Quantity Price
Brats 100 $1.00Cheese 20 $5.00
Year 2006Item Quantity Price
Brats 150 $2.00Cheese 25 $7.00
Real GDP using 2006 as abase year.
Real GDP2005 =100(2) + 20(7) = 340
Real GDP2006 =150(2) + 25(7) = 475
What is real GDP growth?
Real GDP Growth = 475−340340
= 0.397 = 39.7%
ECO 120 Global Macroeconomics Unit 4: Measuring GDP and Prices
![Page 91: Chapter 5: Measuring GDP and Prices - James Murray | Department of](https://reader031.vdocuments.net/reader031/viewer/2022020704/61fb5f162e268c58cd5d617a/html5/thumbnails/91.jpg)
National income accountsReal GDP
Shortcomings of GDP
Real vs. Nominal GDPComputing GDPCalculating the Price Level
Example: Real GDP 18/ 22
Year 2005Item Quantity Price
Brats 100 $1.00Cheese 20 $5.00
Year 2006Item Quantity Price
Brats 150 $2.00Cheese 25 $7.00
Real GDP using 2006 as abase year.
Real GDP2005 =100(2) + 20(7) = 340
Real GDP2006 =150(2) + 25(7) = 475
What is real GDP growth?
Real GDP Growth = 475−340340
= 0.397 = 39.7%
ECO 120 Global Macroeconomics Unit 4: Measuring GDP and Prices
![Page 92: Chapter 5: Measuring GDP and Prices - James Murray | Department of](https://reader031.vdocuments.net/reader031/viewer/2022020704/61fb5f162e268c58cd5d617a/html5/thumbnails/92.jpg)
National income accountsReal GDP
Shortcomings of GDP
Real vs. Nominal GDPComputing GDPCalculating the Price Level
Example: Real GDP 18/ 22
Year 2005Item Quantity Price
Brats 100 $1.00Cheese 20 $5.00
Year 2006Item Quantity Price
Brats 150 $2.00Cheese 25 $7.00
Real GDP using 2006 as abase year.
Real GDP2005 =100(2) + 20(7) = 340
Real GDP2006 =150(2) + 25(7) = 475
What is real GDP growth?
Real GDP Growth = 475−340340
= 0.397 = 39.7%
ECO 120 Global Macroeconomics Unit 4: Measuring GDP and Prices
![Page 93: Chapter 5: Measuring GDP and Prices - James Murray | Department of](https://reader031.vdocuments.net/reader031/viewer/2022020704/61fb5f162e268c58cd5d617a/html5/thumbnails/93.jpg)
National income accountsReal GDP
Shortcomings of GDP
Real vs. Nominal GDPComputing GDPCalculating the Price Level
Example: Real GDP 18/ 22
Year 2005Item Quantity Price
Brats 100 $1.00Cheese 20 $5.00
Year 2006Item Quantity Price
Brats 150 $2.00Cheese 25 $7.00
Real GDP using 2006 as abase year.
Real GDP2005 =100(2) + 20(7) = 340
Real GDP2006 =150(2) + 25(7) = 475
What is real GDP growth?
Real GDP Growth = 475−340340
= 0.397 = 39.7%
ECO 120 Global Macroeconomics Unit 4: Measuring GDP and Prices
![Page 94: Chapter 5: Measuring GDP and Prices - James Murray | Department of](https://reader031.vdocuments.net/reader031/viewer/2022020704/61fb5f162e268c58cd5d617a/html5/thumbnails/94.jpg)
National income accountsReal GDP
Shortcomings of GDP
Real vs. Nominal GDPComputing GDPCalculating the Price Level
Example: Real GDP 18/ 22
Year 2005Item Quantity Price
Brats 100 $1.00Cheese 20 $5.00
Year 2006Item Quantity Price
Brats 150 $2.00Cheese 25 $7.00
Real GDP using 2006 as abase year.
Real GDP2005 =100(2) + 20(7) = 340
Real GDP2006 =150(2) + 25(7) = 475
What is real GDP growth?
Real GDP Growth = 475−340340
= 0.397 = 39.7%
ECO 120 Global Macroeconomics Unit 4: Measuring GDP and Prices
![Page 95: Chapter 5: Measuring GDP and Prices - James Murray | Department of](https://reader031.vdocuments.net/reader031/viewer/2022020704/61fb5f162e268c58cd5d617a/html5/thumbnails/95.jpg)
National income accountsReal GDP
Shortcomings of GDP
Real vs. Nominal GDPComputing GDPCalculating the Price Level
Chain weighted real GDP 19/ 22
Different base years lead to different conclusions for outputgrowth.
Chain weighted GDP: Another measure of real GDP thataverages out these differences.
ECO 120 Global Macroeconomics Unit 4: Measuring GDP and Prices
![Page 96: Chapter 5: Measuring GDP and Prices - James Murray | Department of](https://reader031.vdocuments.net/reader031/viewer/2022020704/61fb5f162e268c58cd5d617a/html5/thumbnails/96.jpg)
National income accountsReal GDP
Shortcomings of GDP
Real vs. Nominal GDPComputing GDPCalculating the Price Level
Chain weighted real GDP 19/ 22
Different base years lead to different conclusions for outputgrowth.
Chain weighted GDP: Another measure of real GDP thataverages out these differences.
ECO 120 Global Macroeconomics Unit 4: Measuring GDP and Prices
![Page 97: Chapter 5: Measuring GDP and Prices - James Murray | Department of](https://reader031.vdocuments.net/reader031/viewer/2022020704/61fb5f162e268c58cd5d617a/html5/thumbnails/97.jpg)
National income accountsReal GDP
Shortcomings of GDP
Real vs. Nominal GDPComputing GDPCalculating the Price Level
Calculating the price level 20/ 22
Price level: an overall measure of prices in the economy.
GDP deflator: average of current year prices as a percentageof base year prices.
GDP deflator =Nominal GDP
Real GDP(100)
Compute GDP deflator using 2005 as a base year.
ECO 120 Global Macroeconomics Unit 4: Measuring GDP and Prices
![Page 98: Chapter 5: Measuring GDP and Prices - James Murray | Department of](https://reader031.vdocuments.net/reader031/viewer/2022020704/61fb5f162e268c58cd5d617a/html5/thumbnails/98.jpg)
National income accountsReal GDP
Shortcomings of GDP
Real vs. Nominal GDPComputing GDPCalculating the Price Level
Calculating the price level 20/ 22
Price level: an overall measure of prices in the economy.
GDP deflator: average of current year prices as a percentageof base year prices.
GDP deflator =Nominal GDP
Real GDP(100)
Compute GDP deflator using 2005 as a base year.
ECO 120 Global Macroeconomics Unit 4: Measuring GDP and Prices
![Page 99: Chapter 5: Measuring GDP and Prices - James Murray | Department of](https://reader031.vdocuments.net/reader031/viewer/2022020704/61fb5f162e268c58cd5d617a/html5/thumbnails/99.jpg)
National income accountsReal GDP
Shortcomings of GDP
Real vs. Nominal GDPComputing GDPCalculating the Price Level
Calculating the price level 20/ 22
Price level: an overall measure of prices in the economy.
GDP deflator: average of current year prices as a percentageof base year prices.
GDP deflator =Nominal GDP
Real GDP(100)
Compute GDP deflator using 2005 as a base year.
ECO 120 Global Macroeconomics Unit 4: Measuring GDP and Prices
![Page 100: Chapter 5: Measuring GDP and Prices - James Murray | Department of](https://reader031.vdocuments.net/reader031/viewer/2022020704/61fb5f162e268c58cd5d617a/html5/thumbnails/100.jpg)
National income accountsReal GDP
Shortcomings of GDP
Real vs. Nominal GDPComputing GDPCalculating the Price Level
Calculating the price level 20/ 22
Price level: an overall measure of prices in the economy.
GDP deflator: average of current year prices as a percentageof base year prices.
GDP deflator =Nominal GDP
Real GDP(100)
Compute GDP deflator using 2005 as a base year.
ECO 120 Global Macroeconomics Unit 4: Measuring GDP and Prices
![Page 101: Chapter 5: Measuring GDP and Prices - James Murray | Department of](https://reader031.vdocuments.net/reader031/viewer/2022020704/61fb5f162e268c58cd5d617a/html5/thumbnails/101.jpg)
National income accountsReal GDP
Shortcomings of GDP
Shortcomings of GDP 21/ 22
Does not account for non-market activities.
Leisure: Average workweek in 1900 was 53 hours. Today it’s35 hours.
Improved product quality (eg. computers and electronicdevices).
Underground economy, significant for lesser developedcountries.
External costs. Clean up costs are actually added to GDP.
Says nothing about distribution.
ECO 120 Global Macroeconomics Unit 4: Measuring GDP and Prices
![Page 102: Chapter 5: Measuring GDP and Prices - James Murray | Department of](https://reader031.vdocuments.net/reader031/viewer/2022020704/61fb5f162e268c58cd5d617a/html5/thumbnails/102.jpg)
National income accountsReal GDP
Shortcomings of GDP
Shortcomings of GDP 21/ 22
Does not account for non-market activities.
Leisure: Average workweek in 1900 was 53 hours. Today it’s35 hours.
Improved product quality (eg. computers and electronicdevices).
Underground economy, significant for lesser developedcountries.
External costs. Clean up costs are actually added to GDP.
Says nothing about distribution.
ECO 120 Global Macroeconomics Unit 4: Measuring GDP and Prices
![Page 103: Chapter 5: Measuring GDP and Prices - James Murray | Department of](https://reader031.vdocuments.net/reader031/viewer/2022020704/61fb5f162e268c58cd5d617a/html5/thumbnails/103.jpg)
National income accountsReal GDP
Shortcomings of GDP
Shortcomings of GDP 21/ 22
Does not account for non-market activities.
Leisure: Average workweek in 1900 was 53 hours. Today it’s35 hours.
Improved product quality (eg. computers and electronicdevices).
Underground economy, significant for lesser developedcountries.
External costs. Clean up costs are actually added to GDP.
Says nothing about distribution.
ECO 120 Global Macroeconomics Unit 4: Measuring GDP and Prices
![Page 104: Chapter 5: Measuring GDP and Prices - James Murray | Department of](https://reader031.vdocuments.net/reader031/viewer/2022020704/61fb5f162e268c58cd5d617a/html5/thumbnails/104.jpg)
National income accountsReal GDP
Shortcomings of GDP
Shortcomings of GDP 21/ 22
Does not account for non-market activities.
Leisure: Average workweek in 1900 was 53 hours. Today it’s35 hours.
Improved product quality (eg. computers and electronicdevices).
Underground economy, significant for lesser developedcountries.
External costs. Clean up costs are actually added to GDP.
Says nothing about distribution.
ECO 120 Global Macroeconomics Unit 4: Measuring GDP and Prices
![Page 105: Chapter 5: Measuring GDP and Prices - James Murray | Department of](https://reader031.vdocuments.net/reader031/viewer/2022020704/61fb5f162e268c58cd5d617a/html5/thumbnails/105.jpg)
National income accountsReal GDP
Shortcomings of GDP
Shortcomings of GDP 21/ 22
Does not account for non-market activities.
Leisure: Average workweek in 1900 was 53 hours. Today it’s35 hours.
Improved product quality (eg. computers and electronicdevices).
Underground economy, significant for lesser developedcountries.
External costs. Clean up costs are actually added to GDP.
Says nothing about distribution.
ECO 120 Global Macroeconomics Unit 4: Measuring GDP and Prices
![Page 106: Chapter 5: Measuring GDP and Prices - James Murray | Department of](https://reader031.vdocuments.net/reader031/viewer/2022020704/61fb5f162e268c58cd5d617a/html5/thumbnails/106.jpg)
National income accountsReal GDP
Shortcomings of GDP
Shortcomings of GDP 21/ 22
Does not account for non-market activities.
Leisure: Average workweek in 1900 was 53 hours. Today it’s35 hours.
Improved product quality (eg. computers and electronicdevices).
Underground economy, significant for lesser developedcountries.
External costs. Clean up costs are actually added to GDP.
Says nothing about distribution.
ECO 120 Global Macroeconomics Unit 4: Measuring GDP and Prices
![Page 107: Chapter 5: Measuring GDP and Prices - James Murray | Department of](https://reader031.vdocuments.net/reader031/viewer/2022020704/61fb5f162e268c58cd5d617a/html5/thumbnails/107.jpg)
National income accountsReal GDP
Shortcomings of GDPNext up...
Next up... 22/ 22
Measuring Unemployment: Modules 13 and 14
Measuring Inflation - Module 16
ECO 120 Global Macroeconomics Unit 4: Measuring GDP and Prices