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CHAPTER 5 -- Part 2: NATIONAL-INCOME ACCOUNTING
The consump advances technology.
Capital depreciation is calculated by the amount of capital in the U.S. Department of Commerce.
This is the equipment.
Changes in business capital stock shrink when net investment is negative.
During the Great Depression, this was the situation.
The economy's ability to produce goods and services declined.
T ment expenditure can be invested in a given time period.
The uses of GDP are the focus of gross invest.
It's more than the total value of annual ment less depreciation.
The GDP accounts give us an idea of what society's answer to the core issue of WHAT to produce is.
The amount of capital consumed may not be reflected in the depreciation charges firms commonly make.
M E A S U R I N G M A C R O U T C O M E S from doughnuts to computer services.
All goods and services households purchase in product markets are included in this category.
The plant, machinery, and equipment we produce are investment goods.
Investments include net changes in business inventories and expenditures for residential construction.
We need to use scarce resources that could be used to make something else.
The government sector's resources are not available for investment or consumption.
Some of the goods and services we produce are used abroad rather than at home.
Goods and ser vices are what they are used for.
GDP will be sold to international buyers.
A Jaguar is an imported good.
Even though Jaguar is owned by sources, GDP has not been produced within our borders.
The cars are made in England.
The imports never enter the GDP accounts.
It's difficult to distinguish imports from domestic-made products when they include value added from both foreign and domestic producers.
The final assembly of "American-made" cars typically involves parts manufactured in Japan, Mexico, Thailand, Britain, Spain, or Germany.
We discover a simple method for calculating GDP once we recognize the components of output.
Adding up expenditures of market participants can be used to calculate the value of GDP.
We know how much was produced and what uses were made of it if we know who is buying it.
There is another way of looking at GDP.
One side focuses on expenditure while the other focuses on income in GDP accounts.
The value of incomes is determined by the wages value of output.
One person's expenditure always shows another person's income.
There is a link between spending on output and incomes.
In Chapter 3, we saw a modi fied version of the circular flow.
The spending that flows into the product market goes into the factor market, where resources are used to produce the goods people want.
Business owners, workers, landlords, and other resource owners receive the expenditure.
Money doesn't affect the equivalency of output and income.
Total income would still be equal to total output if we only produced wheat and paid everyone in pecks.
We produced more wheat than people received in income.
The amount of income generated depends on the production and expenditure decisions of consumers, firms, and government agencies.
The table shows the flow of income and output in the U.S. economy.
The components of GDP are consumption, investment, government goods and services, and net exports.
On the left side of table, there are figures that show how much consumers spent, how much businesses spent, how much governments spent, and how much net imports were.
In 2006 our total output value was more than $13 trillion.
The income generated from these markets transactions is shown on the right-hand side.
Money spent on goods and services helps someone.
It can be given to a worker or a business firm.
It can go to a landlord as rent, to a lender as interest, or to the government as sales or property tax.
Money spent on goods and services stays in the air.
We can see our output by looking at income through the economy.
Product-market sales are where the annual income begins.
Purchases of goods and services create income for producers and contribute to factors of production.
A major diversion of sales revenues occurs immediately as a result of depreciation charges made by businesses.
Some of our capital resources are used in the production process.
Most of the resources are owned by businesses that expect to be compensated for their investments.
They consider some of the sales revenue generated in product markets to be reimbursement for wear and tear on capital plant and equipment.
Some of the income generated in U.S. product markets is for foreigners.
Wages, interest, and profi ts paid to foreigners are not included in U.S. income.
We need to subtract that.
The factors of production employed in other nations are owned by U.S. citizens.
Adding back the net inflow of foreign factor income is needed to connect the value of U.S. output to U.S. incomes.
Our national income in 2006 was $11.7 trillion, or 90 percent of GDP.
As the GDP makes its way to consumer households, there are still more revenue diversions.
Retained earnings include inventory valuation changes and depreciation.
The point of origin is where another major diversion of income occurs.
When goods are sold in the marketplace, the purchase price is usually subject to a sales tax.
Some of the revenue generated in product markets disappears before production gets a chance to claim it.
Households who hold stock in corporations represent income for their owners.
Income from corporations to stockholders is not complete.
Corporations can pay taxes on their profi ts.
Some of the income received on behalf of a corporation's stockholders goes into the public treasury.
Corporate managers often need cash.
Part of the profi ts is retained by the corporation and not passed on to the stockholders in the form of dividends.
In 2007, the Social Security tax rate for workers was 7.65 percent of the first $97,500 of earnings.
The income is not seen by workers because they are not paid it.
Some of our adjustments to national income are positive.
More than 47 million people receive monthly Social Security checks, and another 14 million get some form of public welfare.
Income transfers are for people who receive them.
Because of interest payments on the government debt, people receive interest payments in excess of what they pay.
The flow of income generated in production is reduced before it gets to individual households.
We haven't reached the end of the reduction process.
We have to set aside money for taxes.
Uncle Sam and his state and local affiliates usually take their share off the top to make sure we don't forget about our obligations.
The person acts as a tax collector after their employer.
The end of the accounting line is disposable income.
Households end up with 70% of the revenues generated from final market sales.
Consumers have two choices once they have disposable income in their hands.
There are only two choices for GDP accounting.
We don't care if savings are hidden under a mattress or not in the analysis of consumption.
We want to know if disposable income is spent.
The Bureau of Eco THE FLOW OF INCOME nomic Analysis has the latest data on GDP and its components.
Every dollar spent on goods and services goes into someone's hands.
Households spend most of their disposable income on consumption.
Spending adds to GDP in the next round of activity, which helps to keep income moving.
Business firms have a lot of purchasing power tied up in retained earnings and depreciation charges.
This income may be recycled in the form of business investment.
Government agencies hire police officers, soldiers, and clerks, or they buy goods and services, as the income that flows into public treasuries finds its way back into the marketplace.
GDP is the dollar value of output sold in the product of smaller DI.
DI is either spent or saved by consumers.
This consumption, plus investment, government spending, and through NDP, NI, and PI before reaching households in the form net exports, continues the circular.
Money, money, money--it seems that's all we talk about.
The economic measures discussed in this chapter are important indicators of individual and collective welfare.
They do not capture the completeness of the way in which we view the world.
A clear day, a sense of accomplishment, even a smile can do more for a person's sense of well-being than can positive movements in the GDP accounts.
John Kenneth Galbraith said that in a rational lifestyle, some people could sit by the street and make love in a discreet way.
The emphasis on economic outcomes comes from the visibility of the economic outcomes.
We all know that well-being comes from both material and intangible pleasures, but the intangibles are hard to find.
It's not easy to gauge individual happiness, and it's not easy to determine the status of our Topic Podcast: GDP Accounting collective satisfaction.
Measures we can see, touch, and count are what we have to rely on.
The material components of our environment should serve a useful purpose if they have a positive relation to our well-being.
In some cases, more physical output may make things worse.
Increased automobile production raises congestion and pollution levels, and the rise in GDP occasioned by those additional cars is a misleading index of society's welfare.
We might wonder if more casinos, more prisons, more telemarketing, more divorce litigation, and more Prozac--all of which contribute to GDP growth--are really valid measures of our well-being.
It is clear that exclusive emphasis on measurable output is a mistake.
The mid-1970s was when America's social health deteriorated the most.
Despite a rise in the nation's economy, the social health index stayed the same in the 1980s.
Material well-being is emphasized in the national-income accounts.
They are an important gauge of our society's welfare.
It is possible that what is true of automobile production is also true of other outputs.
If development occurs at the expense of space, trees, and tranquility, it may diminish social welfare.
Increased mechanization on the farm can raise agricultural output, but it can also cause problems.
Increased productivity in factories and offices may contribute to a sense of isolation.
If the ill effects of increased output occur, the indexes of output tell us less about social or individual well-being.
Unemployment and weekly earnings are included in their index of social health, but they put more emphasis on sociological behavior such as child abuse and teen suicides.
Even though GDP was rising, they claim that societal well-being has been stagnant over the past two decades.
Not everyone would agree with Fordham's view of our social health.
The United Nations has constructed increased as measured by the value of goods and services produced.
They don't tell us how much we value additional goods and services relative to nonmarket phenomena.
These judgments must be made outside of the market.
Any given level of GDP can encompass many combinations of output.
The quality of life in the economy will depend on the mix of goods and services we include in GDP.
Gross by someone is the most comprehensive measure of output.
The total market value of all goods and services is equal to the aggregate income.
During a given time period, the sequence of ows involved in this process is ders.
Vices are not included in GDP for most of the time.
The incomes received by households and businesses.
Net further GDP is created by subtracting depreciation from GDP.
The difference between the two parties continues.
A friend typed the manuscript for this book.
GDP in 1981 was over $3 trillion.
Is it possible to increase consumption without decreasing the quantity of output?
There are likely jobs in the underground 9.
There are numerical and graphing problems in the Student Problem Set at the back of the book.
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