GDPandItsDiscontents.pptVIP

GDP and Its Discontents Suggested Supplementary Reading Ebook: Peter Kennedy Macroeconomic Essentials: Understanding Economics in the News Quantity Aggregates To understand the macroeconomy, we need to measure it. Chief measure of economy is the level of production We need to combine the many goods produced or consumed in an economy into one measure. Gross Domestic Product (GDP) GDP is the sum of the value of new, final goods produced within the domestic borders of an economy. GDP does not include: Intermediate goods which are sold from one firm to another for immediate transformation into other goods. financial transactions like buying stocks. purchases of used goods which have been sold before. goods produced overseas by domestic firms. Three Methods for Calculating GDP Production Method - The value added created in all the sectors of the economy. Expenditure Method - The sum of the domestic spending on final goods (less domestic demand satisfied by imports). Income Method – The Wage, Rent, Interest and Profit Income generated by the domestic economy. Production Method At the plant level, Value added = Sales + Change in inventories - materials, intermediate inputs and energy costs. Value added at the firm level is directly taxed in the EU (VAT) GDP is the sum of VA across establishments. The value of a final good is equal to the value added at each stage of production. Expenditure Method Japanese Expenditure Expenditure Categories in Hong Kong: 2008 Income Method Survey domestic residents and calculate their wage income, interest income, rental income plus the income of proprietors of small firms plus the profits depreciation of the corporate sector. Subtract net international income flows. Not calculated for HK on an annual basis. Income Method, Japan 2003 High Concept Income = Expenditure = Value Added High Concept Value of a final good expenditure is equal to value added at each stage of production. (Expenditure = Value A