macro chapter 10: measuring a nation's income

consumption

Consumption is spending by households on goods and services, with the exception of purchases of new housing.

disposable personal income

Disposable personal income is the income that households and noncorporate businesses have left after satisfying all their obligations to the government.

Do imports affect GDP?

when a domestic household, firm, or government buys a good or service from abroad, the purchase reduces net exports, but because it also raises consumption, investment, or government purchases, it does not affect GDP.

Which of the following statements are true about transfer payments with regard to computing GDP

*Transfer payments alter household income, but they do not reflect the economy's production *Transfer payments are not accounted for in the consumption component of GDP. *Social security is an example of a transfer payment and is not included in GDP.

Government Purchases

Government purchases include spending on goods and services by local, state, and federal governments.

GDP

Gross domestic product (GDP) is the market value of all final goods and services produced within a country in a given period of time.

Gross national product (GNP)

Gross national product (GNP) is the total income earned by a nation's permanent residents (called nationals).

investment

Investment is the purchase of goods that will be used in the future to produce more goods and services. It is the sum of purchases of capital equipment, inventories, and structures. Investment in structures includes expenditure on new housing.

National income

National income is the total income earned by a nation's residents in the production of goods and services.

Net exports

Net exports equal the foreign purchases of domestically produced goods (exports) minus the domestic purchases of foreign goods (imports).

Net national product (NNP

Net national product (NNP) is the total income of a nation's residents (GNP) minus losses from depreciation

personal income

Personal income is the income that households and noncorporate businesses receive.

real gdp

Real GDP answers a hypothetical question: What would be the value of the goods and services produced this year if we valued these goods and services at the prices that prevailed in some specific year in the past? By evaluating current production using prices that are fixed at past levels, real GDP shows how the economy's overall production of goods and services changes over time.

Y= C+I+G+NX

To do this, GDP (which we denote as ) is divided into four components: consumption , investment , government purchases , and net exports :

If total spending rises from one year to the next, what is happening?

at least one of two things must be true: the economy is producing a larger output of goods and services, or goods and services are being sold at higher prices.

what is the largest component of GDP?

consumption

what does GDP measure ?

the total income of everyone in the economy and the total expenditure on the economy's output of goods and services which is really the same thing income=expenditure