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Measuring A Nation's Income

The document discusses different approaches to measuring a nation's gross domestic product (GDP), including the expenditure, income, and value added approaches. It also explains how GDP, GNP, nominal GDP, and real GDP are defined and calculated. Various economic indicators used to analyze a country's economy are introduced, such as the GDP deflator, inflation rate, economic growth rate, and the consumer price index.

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105 views41 pages

Measuring A Nation's Income

The document discusses different approaches to measuring a nation's gross domestic product (GDP), including the expenditure, income, and value added approaches. It also explains how GDP, GNP, nominal GDP, and real GDP are defined and calculated. Various economic indicators used to analyze a country's economy are introduced, such as the GDP deflator, inflation rate, economic growth rate, and the consumer price index.

Uploaded by

k61.2212155175
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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MEASURING A

NATION'S INCOME
Presented by Team 2
Measuring GDP
Expenditure Approach

Y = GDP = the value of total output


C + I + G + NX = aggregate expenditure
Measuring GDP
Income Approach

Total National Income = Sum of rent, salaries profit.


Sales Taxes = Tax imposed by a government on sales of goods and
services.
Depreciation = the decrease in the value of an asset over time.
Net Foreign Factor Income =
Income of foreigners living locally - income of citizens living abroad
Measuring GDP
Income Approach
Measuring GDP
Income Approach

Total National Income = Sum of rent, salaries profit.


Sales Taxes = Tax imposed by a government on sales of goods and
services.
Depreciation = the decrease in the value of an asset over time.
Net Foreign Factor Income =
Income of foreigners living locally - income of citizens living abroad
Measuring GDP
Value Added Approach
A firm’s value added is: The value of each intermediate good is
added together to estimate the value of the final good
Real Vs. Nominal GDP

Changes in nominal GDP can be due to changes in:


Prices
Quantities of output produced
Real Vs. Nominal GDP
Nominal GDP Real GDP
Nominal GDP measures these values Real GDP measure these values using
using current prices. the prices of a base year.

• i: final item 1, 2.., n


t = 0: base year
• t: the year counting
• p: price of each item
• q: quantity of each item
Example
GDP Deflator

is a measure of the average price level in the economy.

It shows changes in price in the current year compared to


the based year -> measure inflation.
Example
Inflation rate
GDP deflator is a useful tool for measuring inflation because it
measures the current level of prices relative to the level of
prices in the base year
Using the GDP deflator, the inflation rate between two
consecutive years is computed as follows:
Economic growth rate

Changes in real GDP can only be due to changes in quantities.


Used to calculate economic growth rate g

Economic growth rate is computed as follows:


Example
GROSS NATIONAL PRODUCT
- GNP

is the total value of all final goods


and services produced by a nation’s
citizens in a given period of time
GNP Vs. GDP
A: the value of goods and services produced by a
nation’s citizens within its territory.
B: the value of goods and services produced by
other nations’ citizens within its territory.
C: the value of goods and services produced by a
Vietnam Others nation’s citizens in other nations’ territory

GDP = A + B => A = GDP – B (1) Replace (1) into (2):


GNP = A + C (2) GNP = GDP + (C – B)

With: NFA: Net Factor Income From Abroad: gap between income created by domestic citizens in
foreign countries and income created by foreigners in domestic country
Some other measures of
national income
Net National Product (NNP):
NNP = GNP – Dep
National Income (NI):
NI = NNP – Te
Personal Income (PI):
PI = NI – Pr retained earnings + Tr
Disposable Income (YD ):
YD = PI – TPI
YD = C + S
THE CONSUMER PRICE INDEX (CPI)

- Is a measure of the overall cost of the goods and services bought


by a typical consumer.
- Used to
Track changes in the household’s cost of living.
Adjust many contracts for inflation (i.e. “COLAs”)
Allow comparisons of dollar figures from different years
How the BLS constructs the CPI
1. Survey consumers to determine composition of the typical
consumer’s “basket” of goods.
2. Every month, collect data on prices of all items in the basket
3. Compute the cost of basket = the price x the quantity x the weight
4. CPI in any month equals
GDP deflator Vs. CPI
GDP deflator CPI
• is based on only domestically • is based on what typical
produced goods and services consumers consume
• things that are produced in • fixed basket
that time period (no fixed
basket)
Problems of using CPI

Substitution bias

Introduction of new goods

Unmeasurable changes in quality


CORRECTING ECONOMIC VARIABLES
FOR THE EFFECTS OF INFLATION

Price indexes are used to correct for the


effects of inflation when comparing
dollar figures from different times.
Dollar Figures from Different Times

Babe Ruth’s salary in


o 1931: $80,000
o 2001: $800,000
CPI 1931 = 15.2
CPI 2001 = 177
=> Did his salary increase in 2001?
Dollar Figures from Different Times

Do the following to convert (inflate) Babe


Ruth’s wages in 1931 to dollars in 2001:
Salary 2001 = Salary 1931 x Price level in 2001
Price level in 1931
= $80,000 x 177
15.2

= $931,579
Indexation

When some dollar amount is


automatically corrected for inflation
by law or contract, the amount is said
to be indexed for inflation.
Real and Nominal Interest Rates

Interest represents a payment in the future for a transfer of


money in the past.
The nominal interest rate is the interest rate usually reported and
not corrected for inflation.
- It is the interest rate that a bank pays.
The real interest rate is the nominal interest rate that is corrected for
the effects of inflation.
Game
VN's GDP
Vietnam GDP in 2019

Source:
https://diendandoanhnghie
p.vn/viet-nam-hung-
cuong-trai-ngot-kinh-te-
nam-2019-164287.html
Vietnam GDP in 2020

Source: https://vnexpress.net/kinh-te-viet-nam-nam-2020-qua-cac-con-so-4212974.html
VN's GDP in 2021
Agro-Forestry-Fishery
12.4%

Service
41%

59.1%

VN’s GDP is 369,74 billion USD with


87.6%
the growth rate at 2,56%
GDP growth rate 2022

Agro-Forestry- Industrial and Service


GDP Fishery construction

GDP Structure

Agro-Forestry- Industrial and Service Product taxes less


Fishery construction subsidies on production
GDP in billion U.S. dollars and prediction
Food and beverage
Drink and tobacco
Textile
Housing
Household appliances
Medicine and health services
Transport
Post and telecommunication
Education
Culture, entertainment, and travel
Others
Inflation rate compared to previous year

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