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6
Measuring National Output and National Income
Value Added
Value added is the difference between the value of goods as they leave a stage of production and the cost of the goods as they entered that stage.
In calculating GDP, we can either sum up
the value added at each stage of production, or we can take the value of final sales. We do not use the value of total sales in an economy to measure how much output has been produced.
2002 Prentice Hall Business Publishing Principles of Economics, 6/e Karl Case, Ray Fair
Value Added
Value Added in the Production of a Gallon of Gasoline (Hypothetical Numbers) STAGE OF PRODUCTION (1) Oil drilling (2) Refining VALUE OF SALES $ .50 .65 VALUE ADDED $ .50 .15
(3) Shipping
(4) Retail sale Total value added
.80
1.00
.15
.20 $ 1.00
Calculating GDP
GDP can be computed in two ways: The expenditure approach: A method of computing GDP that measures the amount spent on all final goods during a given period. The income approach: A method of computing GDP that measures the incomewages, rents, interest, and profitsreceived by all factors of production in producing final goods.
2002 Prentice Hall Business Publishing Principles of Economics, 6/e Karl Case, Ray Fair
GDP C I G ( X M )
involve the production of physical things, such as legal and medical services and education.
2002 Prentice Hall Business Publishing Principles of Economics, 6/e Karl Case, Ray Fair
PERCENTAGE OF GDP 100.0 67.4 8.2 19.8 39.4 17.7 12.9 4.3 0.5 17.6 6.1 11.5 2.7 10.6 13.4
9,299.2 6,268.7 761.3 1,845.5 3,661.9 1,650.1 1,203.1 403.8 43.3 1,634.4 568.6 1,065.8 254.0 990.2 1,244.2
Net Exports
Net exports (EX IM) is the difference between exports (sales to foreigners of U.S.-produced goods and services) and imports (U.S. purchases of goods and services from abroad). The figure can be positive or negative.
PERCENTAGE OF GDP 100.0 80.3 57.0 7.1 9.2 5.5 1.5 12.5 7.4 0.1 0.3
9,299.2 7,469.7 5,299.8 663.5 856.0 507.1 143.4 1,161.0 689.7 11.0 32.2
Net national product equals gross national product minus depreciation; a nations total product minus what is required to maintain the value of its capital stock.
Disposable personal income Less: Personal consumption expenditures Interest paid by consumers to business Personal transfer payments to foreigners Equals: personal saving Personal savings as a percentage of disposable personal income:
Source: See Table 17.2.
PRICE PER UNIT YEAR 1 YEAR 2 P1 P2 $.50 .30 .70 $ .40 1.00 .90
Nonmarket and domestic activities are not counted even though they amount to real production.
2002 Prentice Hall Business Publishing Principles of Economics, 6/e Karl Case, Ray Fair
U.S. DOLLARS
40,080 34,330 33,260 32,380 29,340 26,850 25,850 25,620 25,380 24,940 24,760 24,110 21,400 20,300 20,250 20,020 18,340 15,940 14,080 11,650
COUNTRY
Portugal Argentina South Korea Czech Republic Brazil Mexico Turkey South Africa Colombia Jordan Romania Philippines China Indonesia Pakistan India Rwanda Nepal Ethiopia
U.S. DOLLARS
10,690 8,970 7,970 5,040 4,570 3,970 3,160 2,880 2,600 1,520 1,390 1,050 750 680 480 430 230 210 100
Karl Case, Ray Fair