Economics 3rd ch05

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Economics THIRD EDITION By John B Taylor Stanford University Copyright © 2001 by H Chapter 18 (Macro 5) Measuring the Production, Income, and Spending of Nations Copyright © 2001 by H Overview This chapter introduces GDP and its components from the perspective of spending, income, and production After a brief introduction to price indexes, nominal and real GDP are contrasted, and the limitations of GDP accounting are discussed The chapter concludes with international comparisons of GDP and the role of exchange rates and purchasing power parity in making these comparisons Copyright © 2001 by H Teaching Objectives • Define and introduce the three approaches to determining GDP Discuss the relationship among saving, investment, and net exports Distinguish between nominal and real GDP and the role of price indexes Provide an introductory discussion of international comparisons of GDP Copyright © 2001 by H Measuring GDP • It is most commonly used measure of economic activity • It indicates the dollar value of FINAL goods and services PRODUCED within the borders of the DOMESTIC economy during a period (quarter or year) • Intermediate goods are excluded to avoid double counting Copyright © 2001 by H How to measure GDP? There are three approaches to the measurement of GDP: • spending, • income, • and production Copyright © 2001 by H Spending Approach • The spending approach divides GDP into four areas: households (consumption), businesses (investment), government, and foreigners (net exports) Copyright © 2001 by H Consumption (C) • Consumption reflects the spending by households or individuals for final goods and services The numbers are given in Table 18.2, and the percentage of GDP represented by consumption is given in Figure 18.1 Copyright © 2001 by H Figure 18.1 (Macro 5) Consumption as a Share of GDP Copyright © 2001 by H Investment (I) • Investment reflects the spending of businesses and includes fixed business investment, inventory investment, and residential investment The numbers are given in Table 18.2, and the percentage of GDP represented by consumption and investment is given in Figure 18.2 Copyright © 2001 by H 10 Real GDP and Nominal GDP • Since GDP is the dollar value of goods and services measured in price units, as prices change, GDP changes without any change in the underlying production, income, or spending of an economy A method must be used to hold the effect of price increases constant, particularly when inflation is present to any degree Copyright â 2001 by H 24 Real GDP The adjustment of nominal GDP for the effects of changes in the price level, or inflation, results in real GDP Real GDP then provides a basis of comparison of changes in production between points in time Copyright © 2001 by H 25 Computing real GDP growth rate • The text illustrates how real GDP growth is computed between two years for two goods First, growth is computed using prices of the first year Then, growth is computed using prices of the second year An average of the two percentages is then computed in order to state the increase in real GDP between the two years • Economists a series of two-year corrections and chain them together to find the growth rate for any number of years and any number of goods Copyright © 2001 by H 26 Trends in GDP • The behavior of nominal and real GDP is portrayed in Figure 18.6, which uses a base year of 1992 • The difference between nominal and real GDP in Figure 18.6 reflects inflation over the last 15 years The basic relation is GDP deflator = nominal GDP/real GDP Copyright © 2001 by H 27 Figure 18.6 (Macro 5) Real GDP versus Nominal GDP Copyright © 2001 by H 28 CPI is used as another tool compute inflation • The CPI provides an alternative price index and an index based on a fixed quantity of consumption goods The chain weighted price index is based on a changing quantity of goods and services and includes investment and government as well as consumption purchases The GDP deflator and the CPI are portrayed in Figure 18.7 Copyright © 2001 by H 29 Figure 18.7 (Macro 5) Comparison of Measures of Inflation Copyright © 2001 by H 30 Stocks versus flow variables • GDP, Income, and inflation rate are flow variables • Unemployment, Wealth, and Savings are stock variables Copyright © 2001 by H 31 Distinguishing Between Stocks and Flows Copyright © 2001 by H 32 Shortcomings of the GDP Measure 4a Revisions in GDP occur periodically because of the unevenness of data collection Also, changes in the base year occur at about 5-year intervals 4b Omissions from GDP occur because of difficulty in measurement or the absence of price information on the good or service 4b1 Home production is not included because these activities are simply not reported Market values of these activities are in most cases available but because no spending occurs, GDP tends to understate the value of production Copyright © 2001 by H 33 Shortcomings of the GDP Measure 4b.2 Leisure activity is similarly valuable, but no attempt is made to account for it in GDP 4b.3 The underground economy is estimated to be about 10 percent of GDP in the United States and even larger in other countries Because it is believed to be fairly constant over time, its consequences for growth are probably minor 4b.4 As products improve, GDP should reflect the quality improvements This has occurred in the case of some but not all goods and services Copyright © 2001 by H 34 Shortcomings of the GDP Measure • 4c It is important to understand that even a perfect measure of GDP, although essential to the well-being of individuals, is not a sole measure of other aspects of the well-being of a society • 4c.1 Although vital statistics have improved along with increases in real GDP per capita in the United States, there remain serious areas of concern that are to some extent related to the rise in real GDP These include, for example, increases in the death rates from AIDS, suicide, and murder among young people • 4c.2 Similarly, although there have been improvements in environmental quality, and these improvements account for about $100 billion of GDP, the level of GDP is not itself an indicator of environmental quality Copyright © 2001 by H 35 International Comparisons of GDP • 5a In any attempt to compare GDP between countries, some account must be taken of differences in prices Adjustment for GDP based on exchange rates makes some improvement in the comparison of GDP figures However, if we wish to determine the value of GDP in another country, some information on the price differences of goods is needed Copyright © 2001 by H 36 International Comparisons of GDP • 5b Purchasing power parity exchange rates attempt to adjust exchange rates for differences in the prices of goods across borders through the use of a ratio of price indexes The exchange rate is adjusted to reflect this ratio Copyright © 2001 by H 37 International Comparisons of GDP • 5c Once this adjustment is made, international rankings of countries based on GDP or per capita GDP tend to fluctuate as exchange rates vary, while the corresponding prices not Despite their variability due to exchange rate fluctuations, purchasing power parity exchange rates provide a better basis for international comparisons than an adjustment based solely on exchange rates Copyright © 2001 by H 38
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Xem thêm: Economics 3rd ch05 , Economics 3rd ch05 , Figure 18.3 (Macro 5) Government Purchases, Investment, and Consumption as a Share of GDP, Figure 18.4 (Macro 5) The Circular Flow of Income and Expenditure, . 2. Saving, Investment, and Net Exports, Figure 18.5 (Macro 5) Value Added in Coffee: From Beans to Espresso, Figure 18.7 (Macro 5) Comparison of Measures of Inflation