ECON10003 Lecture Notes - Lecture 1: Gross Domestic Product, Gross National Income, Indirect Tax
19 Jun 2018
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WEEK 1 MACROECONOMICS
Gross Domestic Product (GDP) a nation’s output of goods and services. The market value of final goods and services
produced in an economy over a given period of time, before allowance for depreciation of capital. A measure of PQ
and so can vary from one period to the next by changes in output or price.
Nominal (money) GDP values output in the prices of the current period and so has this difficulty of combining two
changes.
Real GDP adjusts for price change and so gives a measure of output change alone (no influence of price change). Real
GDP in Aus is termed “GDP Chain Volume Measure”. Allows the weights to change in response to the change in
relative prices over time
In bringing together the output of a range of different goods and services into one single value number, a unit of
output of each product will contribute to the total value a weighted amount reflecting the relative price of the product.
That is, if the money price of one product is twice that of another, then a unit of output of that product will contribute
twice as much to the overall GDP measure in value terms as the other.
Real Gross Domestic Income is a measure of the income and purchasing power available to domestic residents after
adjusting real GDP for movements in the terms of trade.
Real Gross National Income includes the adjustment above and also takes account of income flows to and from
overseas – which for Australia are in net terms negative or payments made to residents of other countries exceed those
we receive from them.
Methods to calculate GDP:
Expenditure approach- sum the expenditures on final goods and services only (to avoid double-counting). changes in
inventory are classified as expenditure (positive or negative) because GDP is about measuring what has been
produced, not what has been sold.
Income approach- GOS and mixed income (factor incomes) by firms to households for their factors of production
Production (“value added”) approach- sum the value added at each stage of production (sales revenue less payments
for intermediate goods). “The value a firm adds to the value of intermediate goods and services brought in by the
application of an industrial process employing factors of production.”
Calculating Real GDP
Each method gives different information about recent past behaviour of an economy which will help to predict future
behaviour of output and economic growth. \
GOS gross operating surplus includes dividends, retained earnings, interest, royalties and land rent and direct taxes
payable.
Transfer incomes- such as government pensions and other social welfare payments.
Product and factor markets
The Circular Flow Diagram
This behaviour is considered as a series of flows through markets (product markets, factor markets and financial
markets).
Circular flow in a two-sector economy
find more resources at oneclass.com
find more resources at oneclass.com
Document Summary
Gross domestic product (gdp) a nation"s output of goods and services. The market value of final goods and services produced in an economy over a given period of time, before allowance for depreciation of capital. A measure of pq and so can vary from one period to the next by changes in output or price. Nominal (money) gdp values output in the prices of the current period and so has this difficulty of combining two changes. Real gdp adjusts for price change and so gives a measure of output change alone (no influence of price change). Gdp in aus is termed gdp chain volume measure . Allows the weights to change in response to the change in relative prices over time. That is, if the money price of one product is twice that of another, then a unit of output of that product will contribute twice as much to the overall gdp measure in value terms as the other.
