UNIT 2 Notes - February 1st, 2016

2 Ways to Calculate GDP

·         Income Approach: Add up all of the income that resulted from selling all final goods and services produced in a given year (Not really used; People can lie about income)

Wages (w) + Rents (r) + Interest (i) + Profits (p) + Statistical Adjustments

·         Expenditure Approach: Add up all of the spending on final goods and services produced in a given year. (Same results as Income Approach) (Show Receipts)

GDP = Consumption (c) + Gross Private Domestic Investment (Ig) + Government Spending (g) + Net Exports (Xn)

Compensation of Employees: Wages and Salaries, Wage and Salary Supplements such as pensions, health insurance, and welfare.

Rents: Income received by the households and businesses that supply property resources (tenant to landlord, monthly payments)

Interest: Money paid to suppliers of loans (Unless paid in full, owe interest)

Proprietors Income: This comes from “soul proprietors” (Owning your own business/Entrepreneurship) and partnerships.

Corporate Profits: Could include dividends, corporate income taxes, and undistributed corporate profits

Statistical Adjustments: Would be indirect business taxes, consumption of fixed capital (Depreciation), and net foreign factor payment.

Budget = Gov’t Purchases of Goods & Services + Gov’t Transfer Payments – Gov’t tax & Fee Collections

·         Positive Budget = Deficit

·         Negative Budget = Surplus

Trade = Exports – Imports

·         Positive Trade = Surplus

·         Negative Trade = Defecit

National Income = Compensation of Employees + Rents + Interest Income + Proprietors Income + Corporate Profits

National Income = GDP – Indirect Business Taxes – Depreciation – Net Foreign Factor Payment

Disposable Personal Income = National Income – Personal Household Taxes + Gov’t Transfer Payments

Net Domestic Product (NDP) = GDP – Depreciation

Gross National Product (GNP) = GDP + Net Foreign Factor Payment

Net National Product (NNP) = GNP – Depreciation