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Chapeter 2 - Measurement and Accounting

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ECON 291
Geoff Dunbar

ECON291Chapter 22 Measurement and Accounting21 Production Income and ExpenditureThe national income accounts are an accounting framework used to measure current economic activity There are three measurement approachesProduct approach measures economic activity by calculating the amount of output producedAdds the market values of goods and services produced excluding any goods and services used up in intermediate stages of productionComputes the market values of the valueadded by producers the difference between the value of output and the value of the corresponding inputsIncome approach measures economic activity by calculating the total income receivedWages salary bonuses commissionsTaxes income consumption GST profitAfter tax profitsExpenditure approach measures economic activity by adding the total amounts spent by all final consumers including firms government and individualsFundamental identity of national income accountingTotal productiontotal incometotal expenditureNote to annualize a rate of growthQuarterly rate04Annual rate1044122 Gross Domestic Product221 The Product ApproachGross domestic product GDP is the market value of all final goods and services newly produced within a nation during a fixed period of time Normally one is most interested in annual GDP or quarterly GDP Newly produced goods are goods that are sold provided in the given time periodMarket value Goods and services are counted in GDP at their market values or price at which they are sold By counting GDP in dollars one takes into account the relative economic value of different goodsProblemsSome goods and services are not sold traded in formal marketsoWithin family housework and childcareoEnvironment abatement ie not driving ones caroIndividual health care ie jogging not smokingUnderground economic activity is not included in GDP since it is not reported
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