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BEA

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Bureau of Economic Analysis

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the BEA issues reports on the GDP every

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3 months

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we measure production by

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taking the value, in dollar terms, of all the goods and services produced

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in measuring GDP, we include only the value of

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final goods and services

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GDP includes only

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production that takes place during the indicated time period and does not include the value of used goods

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when we measure the value of total production in the economy by calculating GDP, we are simultaneously

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measuring the value of total income

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if we add up the value of every good and service sold in the economy,

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we must get a total that is exactly equal to the values of all the income in the economy

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firms sell goods and services to 3 groups:

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1. Domestic households 2. Foreign households 3. Government

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firms use the factors of production

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(labor, capital, natural resources, and entrepreneurship) to produce goods and services

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households supply factors of production to firms in exchange for

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income

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divide income into 4 categories:

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1. Wages 2. Interest 3. Rent 4. Profit

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firms pay wages to households in exchange for _, interest for _, and rent for _

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labor services, the use of capital, natural resources such as land

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profit is the income that

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remains after a firm has paid wages, interest, and rent

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federal, state, and local governments

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make payments of wages and interest to households in exchange for hiring workers and other factors of production

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governments also make

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transfer payments to households (social security payments and unemployment insurance payments, not included in GDP

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the sum of wages, interest, rent, and profit is

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total income in the economy

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households spend some of their income on

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goods and services. some of this spending is on domestically produced goods and services, and some is on foreign-produced goods and services. also use some income to pay taxes and to save by making deposits in checking or savings accounts in banks or by buying stocks or bonds

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banks and stock and bond markets make up the

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financial system

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the flow of funds from households into the financial system makes it possible for

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the government and firm to borrow

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we can measure GDP either by

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calculating the total value of expenditures on final goods and services or by calculating the value of total income

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the BEA divides its statistics on GDP into 4 major categories of expenditures:

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1. consumption 2. investment 3. government purchases 4. net exports

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consumption expenditures are made by households and are divided into:

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expenditures on services, non-durable goods, and durable goods

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spending on gross private domestic investment, or simply investment, is divided into 3 categories:

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1. business fixed investment 2. residential investment 3. changes in business inventories

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business fixed investment

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spending by firms on new factories, office buildings, and machinery used to produce other goods (spending on research and development)

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residential investment

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spending by households and firms on new single-family and multi-unit houses

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changes in business inventories

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also included in investment. inventories are goods that have been produced but not yet sold

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imports do not

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represent production in the United States

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equation for the components of GDP

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Y = C + I + G + NX

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consumer spending on services is

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greater than the sum of spending on durable and nondurable goods

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business fixed investment is

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the largest component of investment

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purchases made by state and local governments are

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greater than purchases made by the federal government

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imports are

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greater than exports, so new exports are negative

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an alternative way of calculating GDP is

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the value-added method

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when the BEA calculates GDP, it does not include two types of production:

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1. production in the home 2. production in the underground economy

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household production refers to

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goods and services people produce for themselves

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the most important type of household production is

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the services a homemaker provides to the homemaker's family

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individuals and firms conceal what they buy and sell for three basic reasons:

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1. they are dealing in illegal goods and services 2. they want to avoid paying taxes on the income they earn 3. they want to avoid government regulations

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estimates of the size of the underground economy is

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probably at most 10 percent of measured GDP

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GDP per capita is calculated by

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dividing the value of GDP for a country by the country's population

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reasons why GDP is not a perfect measure of well-being

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1. the value of leisure is not included in GDP 2. GDP is not adjusted for pollution or other negative effects of production 3. GDP is not adjusted for changes in crime and other social problems 4. GDP measures the size of the pie but not how the pie is divided up

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when GDP increases from one year to the next,

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the increase is due partly to increases in production of goods and services and partly to increases in prices

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one drawback to calculating real GDP using base-year prices is that

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over time, prices may change relative to each other

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the further away the current year is from the base year,

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the worse the problem become

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to make the calculation of real GDP more accurate

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the BEA switched to using chain-weighted prices

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chain-weighted prices

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starting with the base year, the BEA takes an average of prices in that year and prices in the following year. it then uses this average to calculate real GDP in the year following the base year

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holding prices constant means that

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the purchasing power of a dollar remains the same from one year to the next

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real GDP holds prices

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constant, which makes it a better measure than nominal GDP of changes in the production of goods and services from one year to the next

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growth in the economy is almost always measured as

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growth in real GDP

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describe real GDP as being measured in

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"base-year dollars"

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because, on average, prices rise from one year to the next,

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real GDP is greater than nominal GDP in years before the base year and less than nominal GDP for years after the base year

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in the base year

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real GDP and nominal GDP are the same

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GDP deflator =

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( nominal GDP / Real GDP ) x 100

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national income accounting refers to

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the methods the BEA uses to track total production and total income in the economy

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the statistical tables containing this information are called the

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national income and product accounts (NIPA) tables

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in addition to computing GDP, the BEA computes the following 4 measures of production and income:

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1. gross national product (GNP) 2. national income 3. personal income 4. disposable personal income

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gross national product (GNP)

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is the value of final goods and services produced by residents of the United States, even if the production takes place outside the United States

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GNP includes

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foreign production by U.S. firms but excludes U.S. production by foreign firms

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in the NIPA tables, depreciation is

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called the consumption of fixed capital

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if we subtract the value of consumption of fixed capital from GDP

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we are left with national income

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national income will

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always be smaller than GDP by an amount equal to depreciation

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to calculate personal income

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we subtract eh earnings that corporation retain rather than pay to shareholders in the form of dividends. we also add in the payments received by households from the government in the form of transfer payments or interest on government bonds

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disposable personal income is equal to

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personal income minus personal tax payments. it is the best measure of the income households actually have available to spend

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GDP calculated as the sum of income payments to households is sometimes called

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gross domestic income

Econ Chapter 19: Terms – Flashcards

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