24-3

(Key Question) Why do economists include only final goods in measuring GDP for a particular year? Why dont they include the alue of stoc!s and "onds sold? Why dont they include the alue of used furniture "ought and sold? #he dollar alue of final goods includes the dollar alue of intermediate goods$ %f intermediate goods &ere counted' then multiple counting &ould occur$ #he alue of steel (intermediate good) used in autos is included in the price of the auto (the final product)$ #his alue is not included in GDP "ecause such sales and purchases simply transfer the o&nership of e(isting assets) such sales and purchases are not themsel es (economic) in estment and thus should not "e counted as production of final goods and ser ices$ *sed furniture &as produced in some pre ious year) it &as counted as GDP then$ %ts resale does not measure ne& production$ (Key Question) ,elo& is a list of domestic output and national income figures for a gi en year$ -ll figures are in "illions$ #he .uestions that follo& as! you to determine the ma/or national income measures "y "oth the e(penditure and income methods$ #he results you o"tain &ith the different methods should "e the same$ $%&' & (% (& ) %* %+ (, ,, (( (%%, () %( %(. '*% ,, %+

24-+

Personal consumption expenditures Net foreign factor income Transfer payments Rents Statistical discrepancy Consumption of fixed capital (depreciation) Social security contributions Interest Proprietors income Net exports Di idends Compensation of employees Taxes on production and imports !ndistributed corporate profits Personal taxes Corporate income taxes Corporate profits "o ernment purc#ases Net pri ate domestic in estment Personal sa ing

a$ *sing the a"o e data' determine GDP "y "oth the e(penditure and the income approaches$ #hen determine 0DP$ "$ 0o& determine 0%1 first' "y ma!ing the re.uired additions and su"tractions from GDP) and second' "y adding up the types of income and ta(es that ma!e up 0%$ c$ -d/ust 0% (from part ") as re.uired to o"tain P%$ d$ -d/ust P% (from part c) as re.uired to o"tain D%$ (a) GDP 2 33++' 0DP 2 3345) (") 0% 2 3367) (c) P% 2 3285)

(d) D% 2 3246$ 24-55 (Key Question) 9uppose that in 58+4 the total output in a single-good economy &as 7'::: "uc!ets of chic!en$ -lso suppose that in 58+4 each "uc!et of chic!en &as priced at 35:$ ;inally' assume that in 2::: the price per "uc!et of chic!en &as 354 and that 22'::: "uc!ets &ere purchased$ Determine the GDP price inde( for 58+4' using 2::: as the "ase year$ ,y &hat percentage did the price le el' as measured "y this inde(' rise "et&een 58+4 and 2:::? *se the t&o methods listed in #a"le 24$4 to determine real GDP for 58+4 and 2:::$ <=5:: 2 35:=354 2 $426 or 42$6 &hen put in percentage or inde( form ($426 ( 5::) 5:: 42$6 54 5: 4 = $4: or 4:> (?asily calculated = = $4 = 4:> ) 42$6 5: 5: @ethod 51 2::: 2 (22'::: ( 354) A 5$: 2 3362'::: 58+4 2 (7'::: ( 35:) A $426 2 3552'::: @ethod 21 2::: 2 22'::: ( 354 2 3362'::: 58+4 2 7'::: ( 354 2 3552'::: 24-52 (Key Question) #he follo&ing ta"le sho&s nominal GDP and an appropriate price inde( for a group of selected years$ Bompute real GDP$ %ndicate in each calculation &hether you are inflating or deflating the nominal GDP data$ Nominal "DP0 1illions $--,3('++3+ ,.,,3% *+*%3% ((*,&3, Price index (%+++ 2 (++) %%3(, ,&3*, -*3-.+3%(+.3(+ Real "DP0 1illions $ 444444 $ 444444 $ 444444 $ 444444 $ 444444

/ear (.-& (.*& (.)& (..& %++&

Calues for real GDP' top to "ottom of the column1 32'88+$4 (inflating)) 34'358$: (inflating)) 36'+53$2 (inflating)) 37'+36$4 (inflating)) 35:'766$6 (deflating)$