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Chapter 20 Measurement of National Income.docx

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McGill University
Economics (Arts)
ECON 209
Mayssun El- Attar Vilalta

ECON 209Jan 16 18 Chapter 20 Measurement of National Income Remember from chapter 19100 ice creamconsumers buy itfirms pays inputs owners workers o ProductGDP o ExpendituresGDP o IncomeGDPNational productnational outputnational income 201 National Output and Value AddedProduction occurs in stagesmost firms produce outputs that are other firms inputs o Intermediate products o Final productsDouble Accounting error that would arise in estimating the nations output by adding all sales for all firms o Intermediate products accounted for more than onceEach firms contribution to total output is its value addedValue addedrevenuescost of intermediate goodsValue addedpayments to factors of productionSumming value added avoids the problem of double counting when measuring total outputTotal value added in economy is called Gross Domestic Product GDP 202 National Income Accounting The Basics3 methods for measuring national income o Total value added from domestic production o Total expenditures on domestic output o Total income generated by domestic productionBecause of circular flow of income these three measures yield same GDP GDP from the Expenditure SideConsider adding up expenditures needed to purchase the final output produced in any given yearThere are 4 broad expenditure categories o Consumption o Investment o Government purchases o Net exportsActual consumption expenditure C includes expenditure on all final goods during the year a
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