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Income Accounting
Income Accounting
Macroeconomics
Definition 1: GDP is the value of all final goods and services produced within a certain geographic region in a given period of time. Definition 2: GDP is the sum of value added within a certain geographic region and time period. Definition 3: GDP is the sum of factor incomes from economic activity within a geographic region and time period.
The price level of all newly and domestically produced final goods and services in an economy is measured by an implicit price deflator for GDP, the GDP deflator:
In terms of changes:
NOTE: Unlike other price indices, the GDP deflator is not based on a fixed basket of goods and services. The basket includes all goods and services that were produced domestically. It may change with peoples expenditure and reflects up-to-date consumption and investment patterns. In practice, the difference to the Consumer Price Index (CPI) is usually relatively small.
Gross Domestic Product (GDP) + Net primary income received from the rest of the world + Payments from the rest of the world (Income of German citizens generated abroad) Payments to the rest of the world (Income of foreigners earned in Germany) = Gross National Product (GNP)
239.3 billion
198.0 billion
2,464.2 billion
...measures economic activity from the product side. It focuses on the value added within a country. Gross value added is the sum of all output values corrected for intermediate inputs. The table below illustrates the case of Germany in 2007:
4,479.9 billion 2,308.0 billion 2,171.8 billion 251.1 billion 2,422.9 billion
Value of output at market prices Intermediate consumption = Gross Value Added (at prod. costs) + Goods taxes (VAT) net of subsidies = GDP (at market prices)
...is the most popular accounting method. It measures economic activity from the demand side, determining the utilisation of goods and services and the total amount of money spent. It follows the domestic (D) concept like in the following table with German 2007 data:
1,376.7 billion 435.64 billion 442.57 billion 1,137.2 billion 966.22 billion 2,422.9 billion
Household consumption expenditure + Government consumption expenditure + Gross investment + Value of exports in domestic currency Value of imports in domestic currency = Gross Domestic Product (GDP)
...calculates the total output of a nation (N) from its total income. For Germany in 2007:
1,183.5 billion 643.52 billion 1,827.1 billion 278.37 billion 2,105.4 billion 358.75 billion 2,464.2 billion 41.29 billion 2,422.9 billion
Compensation of employees + Gross operating surplus (GOS) and gross mixed income (GMI) = National Income + Output taxes and tariffs less subsidies = Net National Product (NNP) + Depreciation = Gross National Product (GNP) Net income receipts from rest of world = Gross Domestic Product (GDP)
In terms of formulae
y
We know from the expenditure approach that everything produced in a country in a period is consumed, in the wider sense, as private consumption, government consumption, investment, and net exports. This can be expressed in a basic formula: Approaching from the income side, we see that all income is spent on consumption, savings, or taxes. Accordingly, we receive:
Both are identities that have to hold all the time. We can therefore always combine them to get
NOTE: In a closed economy: X-M=0 Private savings are invested or pay a government budget deficit Without a government: T-G=0 Private savings are invested at home or abroad Closed economy without government: S=I!
y
35%
65%
Gross Oper. Profits (GOP) and Mixed Income (GMI) Wages and Salaries
Expenditure of GDP
7% 18% 57% 18%
Net income transfers r.o.t.w. Gross investment Government consumption Private consumption
Exercise 3 a) i. National Income = 2,190 ii. GNP = 2,940 iii. NNP = 2,520 b) Aggr. Saving=I depreciation + X M = 360 Comprehension questions (false=F, true=T): 1 a) F b) F c) T d) F 2 a) F b) T c) T d) F 3 a) F b) T c) F d) T 4 a) T b) F c) T d) T 5 a) T b) F c) T d) T e) T f) F g) T 6 a) F b) F c) F d) F