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Chapter 8 Measuring Total Economic Activity 

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I. Gross domestic product (GDP)
   A. The sum of all the goods and services produced within an economic
        unit (country, state) within a period of time (normally a year)
   B. Excludes non-productive transfers
       1. Stock market sales
       2. Working at home
       3. The "Underground Economy" (unreported taxable income)
   C. Two approaches to calculating GDP
       1. Expenditure approach
           a. GDP equals Personal Consumption plus Business Investment
               plus Government  Spending plus Net Exports (exports minus
                imports)
           b. GDP = C + I + G + XN
        c. I is gross investment which is new capital and replacement capital 
            (depreciation).
       d. Q1 2010 GDP 3rd revision - 2.7% from the economicpopulist.org
            blog give some current information on the national income 
            accounting calculation process.
      2. Income approach
           a. GDP equals Rent plus Wages plus Interest plus Profits plus  
              Depreciation plus Indirect Business Taxes plus miscellaneous.
          b. GDP = R + W + I + P + Acc. Dep. + Ind. Bus. Taxes + Misc.

    D. Graph from  http://www.economicpopulist.org/ 7/30/11

 

GDP Revised Upward to 2.7% annualized Growth for Q3 2012, Robert Oak,11/29/2012 
revised from 2.0% in the advance report. There was a significant upward revision to inventories, yet consumer spending was revised down. Exports were revised up as trade statistics became more complete. Q2 GDP was 1.25%.

A quarterly GDP of 2.66%, unrounded, is slightly above treading water economic growth. Consumer spending was barely breathing in Q3. Government spending alone attributed for 0.67 percentage points of Q3's 2.66% GDP. The change in private inventories alone contributed 0.77 percentage points to Q3 GDP. The drought negatively impacted economic growth as farm inventories reduced GDP by –0.39 percentage points. Government spending and inventory build up isn't exactly the kind of economic activity news we want to see. While these both add to economic growth, overall weak demand is still present in the economy.
II. National income accounts measure economic activity 
     A. The highest figure calculated is Gross Domestic
     B. 2010 National Income Accounts (billions of $) through Q3 from
                         from the 2011 Economic Report of the President
        14,745 Gross Domestic Product (GDP)
             188 Minus rest of world factor payments to  non-U. S. companies
        14,933 Gross National Product (GNP)
          1,872 Less capital consumption allowance (depreciation)
        13,061 Net National Product
             184  Less statistical discrepancy
        12,877 National Income (NI)
Less  1,640  Corporate profits
             720  Net interest
          1,010  Contributions for social insurance
             133  Business transfer payments (net)
          1,002  Taxes on production and imports less subsidies
               14 Current deficit on government enterprises
Plus   1,890 Personal interest and Personal dividend income
          2,316 Personal government transfer payments to people
        12,593 Personal Income (PI)
          1,178 Personal current taxes
        11,415 Disposable Personal Income (DPI)
        10,736 Consumption (C)
             679 Saving (S)

    C.   Additional reading
        1. corporations often pass on much of their tax burden
        2.The Problem With the Corporate Tax 
              N. GREGORY MANKIW NYT, June 1, 2008

 Historical analysis from US Bureau of Economic Analysis  
Wikipedia’s entry on the 2007 Budget is also interesting.

CIA World Factbook 2008 figures of total nominal  
GDP (bottom) compared to PPP-adjusted GDP (top) from Wiki 

 

 

 

 

 

 

 

 

                                                                                                from Calculated Risk 

 

III. Money vs. real GDP (taking inflation out of financial data) 
      A. A Price Index measures price changes for a basket of commonly
            used goods over a period of years. 
          1. One year is chosen as a base year, set equal to 100 and years
               before and after are expressed as a percent of the base year. 
          2. For convenience all index calculations are multiplied by 100
              allowing the percent sign to be dropped. 
          3. Two important indexes are the Consumer Price Index (CPI) and
              the Producer Price Index (PPI) which respectively  measure the
              inflation associated with consumer and producer goods.
     B. An index can be used to determine whether someone's salary, 
          a consumer good, and other items of interest have changed more
          or less than inflation.
         1. Nominal salary is salary measured in current dollars.
         2. Real salary is salary adjusted for inflation.
    C. This example uses actual consumer price changes and 1982 as
         the base year (PB). The item of interest could be  someone's salary,
         the price of a new car, etc. (PC is price in current year).

IV. Interpreting national income account data
      A. Comparing data over time requires adjusting for inflation, population
           increases, and number of people working, and quality of goods produces.
          As the chart to the right indicates, some people think government adjustments
          distorts government statistics.
      B. National income accounts do not consider leisure time.
      C. Positive and negative effects of economic activity upon the environment are not 
           measured by national income accounts.   
      D. Genuine Progress Indicator (GPD) attempts to make up for important
           economic activities not measured by GDP.

 

 From Shadowstats.com/ 6/24/11

 
Year Cost of a basket of goods Calculation of CPI
(PC/PB)x100		 CPI Price of Item of Interest (x) Average Weekly Earnings1  x in 1982 dollars
(x/CPI)100

 

United_States_dollarWiki

 
1980 $505 (505/592)100 85 $235.10 276.59
1981 $557 (557/592)100 94 $255.20 271.49
1982 Pb = $592 (592/592)100 100 $267.26 267.26
1983 $611 (611/592)100 103 $280.70 272.52
1984 $637 (637/592)100 108 $292.86 271.17
1Data is from page 360 of the 2000 Economic Report Of The President
Analysis: After adjusting for inflation, it is apparent the item of interest (salary) did not keep up with inflation.
This person was making one hundred and fifty-three 1982 dollars less in 1984 than they were making in 1980.

 

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