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 + X_{N
               c. I is gross investment which is new capital and  replacement capital (depreciation).}          
      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.

II. National income accounts measure economic activity      A. The highest figure calculated is Gross Domestic Product.                                                                                      B. 2005 National Income Accounts (billions of dollars) from Bureau of Economic Analysis: National Economic Accounts     12,487 Gross Domestic Product (GDP)                                                                 508 Plus rest of world factor receipts of U.S. companies          474 Minus rest of world factor payments to non-U.S. companies     12,521 Gross National Product (GNP)       1,574 Less capital consumption allowance (depreciation)     10,947 Net National Product            55  Less statistical discrepancy      10,892 National Income (NI)                 Less        1,352  Corporate profits          498  Net interest          870  Contributions for social insurance            80  Business transfer payments (net)          848  Taxes on production and imports less subsidies           -11 Current surplus on government enterprises                 Plus       1,457 Personal interest income and Personal dividend income       1,525 Personal government transfer payments to people      10,238 Personal Income (PI)        1,207  Personal Taxes         9,030 Disposable Personal Income (DPI)        9,072 Less Consumption (C)            -42 Saving (S)

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

US Bureau of Economic Analysis for an historical analysis of the National Income Accounts.

III. Interpreting national income account data
      A. Comparing data over time requires adjusting for inflation, population increases, and number of people working.
      B. National income accounts do not consider leisure time.
      C. Because measuring the quality of goods and services produced is subjective and therefore difficult, national income 
           accounting ignores quality improvement. Some argue that because improvement is consistent over time, ignoring it 
           is not a problem. But the recent increase in foreign competition may have increased the rate of quality improvement 
           and we may be substantially underestimating GDP.
      D. Positive and negative effects of economic activity upon the environment are not measured by national income accounts.

IV. 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 (P_B). The item of interest could be 
         someone's salary, the price of a new car, etc. (P_C is price in current year).