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Income Labor
Labor
Firms
Households
Income Labor
Labor
Gross Domestic Product: The total market value of all final goods and services produced Firms Households within a nation in a given period of time.
Income Labor
Labor
Income Labor
Labor
within a nation
Income Labor
Income Labor
Labor
Gross Domestic Product: The total market value of all final goods and services produced Firms Households within a nation in a given period of time.
Consumption Spending
Income
Labor
GDP = C
Labor
Firms
Households
Investment Spending
Business expenses
Labor
Save Households
Revenue
Government Spending
Business expenses
Income
Labor
GDP = C + I + G
Households
Net Exports
Firms
Households
Govt. Govt. spending Product Markets GDP Goods / Services
X-M
Exports (+) Imports (-)
Consumer spending
GDP = C + I + G + (X - M)
Summary
Firms
Households
Govt.
X-M
Exports (+) Imports (-)
GDP = C + I + G + (X - M)
The income approach and the expenditure approach yield identical GDP measures.
Income Labor
Labor
Firms
Households
Expenditures
Income
Compensation + Rents + Profits + Net interest + Depreciation + Indirect Business Taxes
Consumption
= GDP =
Investment
+
Government
+
Net exports
Income Labor
Labor NDP
(-) Depreciation
Firms
Govt.
Households
National Income
National Income
taxes
NI Factor Markets
Income Labor
Labor NDP
(-) Depreciation
Firms
Govt.
Households
Personal Income
Personal Income = NI Stockholders may not receive all available corporate profits. - corporate profits - soc. sec. contributions Payroll taxes + transfer payments + net interest + dividends
Social security A portion is paid as payments from govt. corporate taxes, retained earnings Personal Income measures:
Personal Income
the total money actually received by households. the amount of income available for consumption, saving, and paying taxes.
taxes
Labor NDP
(-) Soc. Sec. taxes (+) Transer Income NI payments Factor Markets (-) Corporate taxes (+) Net Interest Labor
PI
(-) Depreciation
Firms
Govt.
Households
Disposable Income
Disposable Income
Income taxes Property taxes Inheritance taxes Disposable Income measures the amount that households have left to spend or save after paying taxes.
taxes
Labor NDP
(-) Soc. Sec. taxes (+) Transer Income NI payments Factor Markets (-) Corporate taxes (+) Net Interest Labor
PI
(-) Personal taxes
(-) Depreciation
Firms
Govt.
Households DI
Summay
Note: GDP = P x y
1.
GDP = P
2.
GDP = P
3.
GDP = P
1.
GDP = P
Real
2.
GDP = P
Nominal
3.
GDP = P
Nominal
Objective: Economists want a measure of GDP that is not distorted by price changes.
Why?
Example
GDP = P
GDP = P
Rs10.00 = 5
Rs18.00 = 6
Compare:
. . . and . . .
The End