1、N. G R E G O R Y M A N K I W23P R I N C I P L E S O FF O U R T H E D I T I O NECON2010 Lecture 11CHAPTER 23 MEASURING A NATIONS INCOMEIn this chapter, look for the answers to these questions:What is Gross Domestic Product (GDP)? How is GDP related to a nations total income and spending? What are the
2、 components of GDP? How is GDP corrected for inflation?Does GDP measure societys well-being? 2CHAPTER 23 MEASURING A NATIONS INCOMEMicro vs. MacroMicroeconomics: The study of how individual households and firms make decisions, interact with one another in markets.Macroeconomics: The study of the eco
3、nomy as a whole.We begin our study of macroeconomics with the countrys total income and expenditure. 3CHAPTER 23 MEASURING A NATIONS INCOMEIncome and ExpenditureGross Domestic Product (GDP) measures total income of everyone in the economy. GDP also measures total expenditure on the economys output o
4、f g&s. For the economy as a whole, , because every dollar of expenditure by a buyer is a dollar of income for the seller.4CHAPTER 23 MEASURING A NATIONS INCOMEThe Circular-Flow Diagramis a simple depiction of the macroeconomy.illustrates GDP as spending, revenue, factor payments, and income. First,
5、some preliminaries:Factors of production are inputs like labor, land, capital, and natural resources. Factor payments are payments to the factors of production. (e.g., wages, rent) 5CHAPTER 23 MEASURING A NATIONS INCOMEFIGURE 1: The Circular-Flow DiagramHouseholds: own the factors of production, sel
6、l/rent them to firms for income buy and consume g&sHouseholdsFirms6CHAPTER 23 MEASURING A NATIONS INCOMEFIGURE 1: The Circular-Flow DiagramHouseholdsFirmsFirms: buy/hire factors of production, use them to produce g&s sell g&s7CHAPTER 23 MEASURING A NATIONS INCOMEFIGURE 1: The Circular-Flow DiagramMa
7、rkets for Factors of ProductionHouseholdsFirmsIncome (=GDP)Wages, rent, profit (=GDP)Factors of productionLabor, land, capitalSpending (=GDP)G & S boughtG & S soldRevenue (=GDP)Markets for Goods & Services8CHAPTER 23 MEASURING A NATIONS INCOMEWhat This Diagram OmitsThe governmentcollects taxespurcha
8、ses g&sThe financial systemmatches savers supply of funds with borrowers demand for loansThe foreign sectortrades g&s, financial assets, and currencies with the countrys residents9CHAPTER 23 MEASURING A NATIONS INCOMEthe market value of all final goods & services produced within a country in a given
9、 period of time.Gross Domestic Product (GDP) IsGoods are valued at their market prices, so:GDP measures all goods using the same units (e.g., dollars in the U.S.), rather than “adding apples to oranges.” Things that dont have a market value are excluded, e.g., housework you do for yourself.10CHAPTER
10、 23 MEASURING A NATIONS INCOMEthe market value of all final goods & services produced within a country in a given period of time.Gross Domestic Product (GDP) IsFinal goods are intended for the end user. Intermediate goods are used as components or ingredients in the production of other goods. GDP on
11、ly includes final goods, as they already embody the value of the intermediate goods used in their production.11CHAPTER 23 MEASURING A NATIONS INCOMEthe market value of all final goods & services produced within a country in a given period of time.Gross Domestic Product (GDP) IsGDP includes tangible
12、goods (like DVDs, mountain bikes, beer)and intangible services (dry cleaning, concerts, cell phone service).12CHAPTER 23 MEASURING A NATIONS INCOMEthe market value of all final goods & services produced within a country in a given period of time.Gross Domestic Product (GDP) IsGDP includes currently
13、produced goods, not goods produced in the past.13CHAPTER 23 MEASURING A NATIONS INCOMEthe market value of all final goods & services produced within a country in a given period of time.Gross Domestic Product (GDP) IsGDP measures the value of production that occurs within a countrys borders, whether
14、done by its own citizens or by foreigners located there. 14CHAPTER 23 MEASURING A NATIONS INCOMEthe market value of all final goods & services produced within a country in a given period of time.Gross Domestic Product (GDP) Isusually a year or a quarter (3 months). 15CHAPTER 23 MEASURING A NATIONS I
15、NCOMEThe Components of GDPRecall: GDP is total spending. Four components:Consumption (C)Investment (I)Government Purchases (G)Net Exports (NX)These components add up to GDP (denoted Y):Y = C + I + G + NX16CHAPTER 23 MEASURING A NATIONS INCOMEConsumption (C)is total spending by households on g&s. Not
16、e on housing costs: For renters, consumption includes rent payments. For homeowners, consumption includes the imputed rental value of the house, but not the purchase price or mortgage payments. 17CHAPTER 23 MEASURING A NATIONS INCOMEInvestment (I)is total spending on goods that will be used in the f
17、uture to produce more goods. includes spending oncapital equipment (e.g., machines, tools)structures (factories, office buildings, houses)inventories (goods produced but not yet sold)Note: does not mean the purchase of financial assets like stocks and bonds.18CHAPTER 23 MEASURING A NATIONS INCOMEGov
18、ernment Purchases (G)is all spending on the g&s purchased by govt at the federal, state, and local levels.G excludes transfer payments, such as Social Security or unemployment insurance benefits. These payments represent transfers of income, not purchases of g&s.19CHAPTER 23 MEASURING A NATIONS INCO
19、MENet Exports (NX)NX = exports importsExports represent foreign spending on the economys g&s. Imports are the portions of C, I, and G that are spent on g&s produced abroad. Adding up all the components of GDP gives:Y = C + I + G + NX20CHAPTER 23 MEASURING A NATIONS INCOMEU.S. GDP and Its Components,
20、 20091,2699,5425,28032,836$46,390per capita2.720.611.470.1100.0% of GDP3902,9331,62310,093$14,259billionsNXGICY21CHAPTER 23 MEASURING A NATIONS INCOMECountries with the Highest GDP, 2008 2,853,062 3,652,824 4,326,187 4,909,272$14,204,322Millions of USDFranceGermanyChinaJapanUnited States22In each of
21、 the following cases, determine how much GDP and each of its components is affected (if at all).A.Debbie spends $200 to buy her husband dinner at the finest restaurant in Boston.B.Sarah spends $1800 on a new laptop to use in her publishing business. The laptop was built in China. C.Jane spends $1200
22、 on a computer to use in her editing business. She got last years model on sale for a great price from a local manufacturer. D.General Motors builds $500 million worth of cars, but consumers only buy $470 million worth of them.23A.Debbie spends $200 to buy her husband dinner at the finest restaurant
23、 in Boston.B.Sarah spends $1800 on a new laptop to use in her publishing business. The laptop was built in China. 24C.Jane spends $1200 on a computer to use in her editing business. She got last years model on sale for a great price from a local manufacturer. D.General Motors builds $500 million wor
24、th of cars, but consumers only buy $470 million of them. 25CHAPTER 23 MEASURING A NATIONS INCOMEReal versus Nominal GDPInflation can distort economic variables like GDP, so we have two versions of GDP: One is corrected for inflation, the other is not. Nominal GDP values output using current prices.
25、It is not corrected for inflation. Real GDP values output using the prices of a base year. Real GDP is corrected for inflation. 26CHAPTER 23 MEASURING A NATIONS INCOMEEXAMPLE:Compute nominal GDP in each year:2002:2003:2004:PizzaLatteyearPQPQ2002$10400$2.0010002003$11500$2.5011002004$12600$3.001200In
26、crease:27CHAPTER 23 MEASURING A NATIONS INCOMEEXAMPLE:Compute real GDP in each year, using 2002 as the base year:PizzaLatteyearPQPQ2002$10400$2.0010002003$11500$2.5011002004$12600$3.001200Increase:$10$2.002002:2003:2004:28CHAPTER 23 MEASURING A NATIONS INCOMEEXAMPLE:In each year,nominal GDP is measu
27、red using the (then) current prices. real GDP is measured using constant prices from the base year (2002 in this example).yearNominal GDPReal GDP20022003200429CHAPTER 23 MEASURING A NATIONS INCOMEEXAMPLE:The change in nominal GDP reflects both prices and quantities. yearNominal GDPReal GDP2002200320
28、04The change in real GDP is the amount that GDP would change if prices were constant (i.e., if zero inflation). 30CHAPTER 23 MEASURING A NATIONS INCOMEReal GDP (base year 2000)Nominal GDP31CHAPTER 23 MEASURING A NATIONS INCOMEThe GDP DeflatorThe GDP deflator is a measure of the overall level of pric
29、es. Definition:One way to measure the economys inflation rate is to compute the percentage increase in the GDP deflator from one year to the next. GDP deflator = 100 x nominal GDPreal GDP32CHAPTER 23 MEASURING A NATIONS INCOMEEXAMPLE:Compute the GDP deflator in each year:yearNominal GDPReal GDPGDP D
30、eflator2002$6000$60002003$8250$72002004$10,800$84002002:2003:2004:33Use the above data to solve these problems:A. Compute nominal GDP in 2004.B. Compute real GDP in 2005. C. Compute the GDP deflator in 2006. 2004 (base yr)20052006PQPQPQgood A$30900$311,000$361050good B$100192$102200$10020534A.Comput
31、e nominal GDP in 2004.B.Compute real GDP in 2005. 2004 (base yr)20052006PQPQPQgood A$30900$311,000$361050good B$100192$102200$10020535C.Compute the GDP deflator in 2006. Nom GDP = Real GDP = GDP deflator =2004 (base yr)20052006PQPQPQgood A$30900$311,000$361050good B$100192$102200$10020536CHAPTER 23
32、MEASURING A NATIONS INCOMEGDP and Economic Well-BeingReal GDP per capita is the main indicator of the average persons standard of living.But GDP is not a perfect measure of well-being. Robert Kennedy issued a very eloquent yet harsh criticism of GDP: Gross Domestic Product“ does not allow for the he
33、alth of our children, the quality of their education, or the joy of their play. It does not include the beauty of our poetry or the strength of our marriages, the intelligence of our public debate or the integrity of our public officials. It measures neither our courage, nor our wisdom, nor our devo
34、tion to our country. It measures everything, in short, except that which makes life worthwhile, and it can tell us everything about America except why we are proud that we are Americans.”- Senator Robert Kennedy, 196838CHAPTER 23 MEASURING A NATIONS INCOMEGDP Does Not Value:the quality of the enviro
35、nmentleisure timenon-market activity, such as the child care a parent provides his or her child at homean equitable distribution of income39CHAPTER 23 MEASURING A NATIONS INCOMEThen Why Do We Care About GDP?Having a large GDP enables a country to afford better schools, a cleaner environment, health
36、care, etc. Many indicators of the quality of life are positively correlated with GDP. For exampleGDP and Life Expectancy in 12 CountriesLife expectancy (in years)Real GDP per capita, 2002U.S.GermanyJapanNigeriaMexicoRussiaBrazilChinaPakistanBangladeshIndiaIndonesiaGDP and Adult Literacy in 12 Countr
37、iesAdult Literacy (% of population)Real GDP per capita, 2002U.S.GermanyJapanRussiaNigeriaMexicoBrazilChinaPakistanBangladeshIndiaIndonesiaGDP and Internet Usage in 12 CountriesInternet Usage (% of population)Real GDP per capita, 2002U.S.GermanyJapanMexicoRussiaBrazilChina43CHAPTER 23 MEASURING A NAT
38、IONS INCOMECHAPTER SUMMARYGross Domestic Product (GDP) measures a countrys total income and expenditure.The four spending components of GDP include: Consumption, Investment, Government Purchases, and Net Exports.Nominal GDP is measured using current prices. Real GDP is measured using the prices of a
39、 constant base year, and is corrected for inflation. GDP is the main indicator of a countrys economic well-being, even though it is not perfect. 44CHAPTER 23 MEASURING A NATIONS INCOMEPractice QuestionsCh 23 Questions for Review: 8.Ch 23 Problems & Applications: 1, 4, 9.Additional Questions:1.GDP fi
40、gures are often subsequently revised, as is the case with the figures in Table 1 of the textbook. Go find the revised figures in www.bea.gov and prepare the revised Table 1. 2.It is often claimed by economists that investment component of Chinas GDP is too high. Search on the internet for the Chinas GDPs and its investment components for the most recent three years, and then calculate the percentage of investment in GDP of these years to verify the claim.
