ECO 304L Chapter 10: Chapter 10 Notes

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Chapter 10: Measuring a Nation's Income
Gross Domestic Product (GDP): The market value of all final goods and services
produced within a country in a given period of time
Measures total income of everyone in the economy
Measures total expenditure on economy's output of goods and services
Income = Expenditure
GDP is a flow measure
Seasonal Adjustment: Adjusts data for when economy produces more goods and
services during some times of the year than during others
Statistical Discrepancy: The difference between the two ways of calculating GDP
Items excluded in GDP
Illegally sold items
Items produced and consumed at home
Intermediate goods (unless it’s inventory)
Transactions involving items produced in the past
Items produced outside of the US
Gross National Product (GNP): Total income earned by a nation's permanent residents
(nationals)
Includes income that citizens earn abroad
Excludes income that foreigners earn in the US
Net National Product (NNP): Total income of a nation's residents minus losses from
depreciation
National Income: Total income earned by a nation's residents in production of goods and
services
Almost identical to NNP
Differs because of statistical discrepancy
Personal Income: Income that households and noncorporate businesses receive
Excludes retained earnings
Subtracts indirect business taxes, corporate income taxes and contributions for
social insurance
Includes interest income that households receive from holdings of government
debt
Includes income from government transfer programs (welfare and Social
Security)
Disposable Personal Income: Income that households and noncorporate businesses
have left after satisfying all their obligations to the government
Personal Income - Personal Taxes and Nontax Payments
Four components of GDP
Consumption (C): Spending by households on goods and services, with the
exception of purchases of new housing
Investment (I): Spending on business capital, residential capital, and inventories
Business Capital
Business structures
Equipment
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