Calculating GDP

GDP vs GNP

GDP: *concerned about location=being produced on U.S soil *don't care about who owns a company, not concerned about ownership GNP: *concerned about ownership, only includes goods and services made by U.S companies *not concerned about location, don't care where in the world that U.S company is making goods

Expenditure approach

GDP=C+I+G+(X-Im) -->a method of calculating GDP that adds all expenditures made for final goods and services by households, firms, foreigners, and government (only new goods will be included)

Gross National Product (GNP)

the market value of all final goods and service in an economy produced by resources owned by people of that economy, regardless of where the resources are located

Personal Income

what people receive personal income=national income+income received but not earned - income earned but not received (taxes)

Inocme recived, but not earned

-gambling -gifts -lottery -inherited -transferred payments: --income received from the government, but not earned: -benefits -unemployment -welfare etc.

4 Expenditure categories:

1. Consumption (C): -->all goods and services bought by households A. Durable goods: -->expected to last alt least a year Ex: oven, refrigerator, TV, computer, etc. =>Purchases of durable goods help economics identify the phases of the business cycle -->Recession: sales of durables are weak because consumers hang on to them -->Prosperity: sales of durable are strong because consumers trade in for new B. Non-durable goods: -->goods expected to last less than one year Ex: food, clothes, gas, shoes C. Services: -->productive activities that are instaneously consumed Ex: cleaning service, child care, renovation, yard services, beauty services, healthcare. 2. Gross Private Investment (I): -->the purchases by firms of factories, equipment and inventory goods =>Exception: household purchase of newly constructed housing A. Some purchases are used just to replace worn out equipment B. Some purchases are used to increase the equipment in use. *Inventory investments --> stocks of finished goods and raw materials that firms keep in reserve to facilitate production and sale --> used to promote efficiency in production and sales 3. Government purchases (G): -->all goods and services bought by the government Ex: office supplies, computers, roads, education, weapons, planes 4. Net-Exports (X-Im): -->an economy's exports to other economies minus its imports from other economies A. Exports (X): -->some of the output produced in the U.S. is bought by foreigners Ex: music, books, corn, wheat, cars B. Imports (Im): -->goods that are bought by consumers and firms NOT produced here in the U.S. Ex: alcohol, electronics, cars, clothes, car parts, coffee B.Income Approach=National Income National Income=W+Int+CP+R+PI -->a method of calculating GDP that adds all the income earned in the production of final goods and services 1. Wages (W): compensation of employees 2. Interest (Int) 3. Corporate profits (CP): -dividends -corporate profits 4. Rent (R) 5. Proprietor's Income (PI): -income earned from the operations of unincorporated business -->includes: sale proprietorship partnership and producer's cooperate