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Understanding GDP, GNP, and Economic Identity

1. This document discusses concepts related to measuring economic output including GDP, GNP, intermediate and final goods, and how public services are included in GDP calculations. 2. It also covers the basic macroeconomic identity that GDP equals total income and total expenditures in an economy. Income comes from wages, profits, interest and rents while expenditures are broken into consumption, investment, government spending, and net exports. 3. The document works through an example economy, calculating values for production, income, expenditures and verifying that GDP=Income=Expenditures. It also shows the relationship between household savings and private investment.

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Juan Carlos Manrique
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5 views4 pages

Understanding GDP, GNP, and Economic Identity

1. This document discusses concepts related to measuring economic output including GDP, GNP, intermediate and final goods, and how public services are included in GDP calculations. 2. It also covers the basic macroeconomic identity that GDP equals total income and total expenditures in an economy. Income comes from wages, profits, interest and rents while expenditures are broken into consumption, investment, government spending, and net exports. 3. The document works through an example economy, calculating values for production, income, expenditures and verifying that GDP=Income=Expenditures. It also shows the relationship between household savings and private investment.

Uploaded by

Juan Carlos Manrique
Copyright
© Attribution Non-Commercial (BY-NC)
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd

PROBLEM SET 9

1. On GDP and GNP a. GDP is the sum of all the added value of the goods legally produced and remunerated in its territory in a certain period of time. b. GNP is not , as GDP, about where the good its being produced , however is about where the companies that produce those goods come from. 2 On nal and intermediate Goods. a. Intermediate good: Log Final good: chair Both: Sugar

b. By summing the added value of each product in each production process , this way you are not adding product, you are adding only added values. 3 on public services in the GDP a. It is quite difcult to measure the value of public services due to the externalities that they generate, non affecting only directly to people but also indirectly. I.E. the use of the tube by many users not only affect those people who pay for the ticket , also affects to the people driving on the roads, because the increase in the use of public transports reduces the trafc jams . b. Public services are included in the GDP by summing the wages of the people that produce them. 4 On the Identity GDP=INCOME= EXPENDITURE [Link] only factors of production would be labour and prots , so households would work for rms receiving wages in exchange or benets depending wether they are employers or employees . The amount of money received as wage or prot would be spent by purchasing rms goods and services generating prots for rms, closing this way the monetary ow. b. The summation of the aded values of every product in each one of the production processes is the GDP, and that production has a monetary value that goes to households from the rms as wages (Labour) , prots (Benets) , and other payments for the factors of production such as Land or Capital. GDP= Y ( W + A + R ) + B

5 On the identity GDP = INCOME = EXPENDITURE GDP = Y = EXPENDITURE y= (W+A+R)+B expenditure = C + I + G + (X-IM) a. None of them because that glass is an intermediate good b. The production measured by the GDP generates an amount of money (INCOME) and that income is equal to the EXPENDITURES such as consumption, investment on the private sector, investment or purchases of the public sector and the net exports. 6 On the nancial accounting a. The trade balance:

b. The public and / or the foreign sector EXERCISE a.) Production: (only nal products) SASA = 17 Millions [Link] = 140 Millions S. Anas Production : 157 millions b. ) Total Value Added =157 millions SASA = 17 millions D. Simon 140 - 70(farmers) = 70 Farmers = 70

c.) Aggregate Income of Santa Ana households INCOME = w+ a+ r+ b wages (W) , capital gains (A ) and Land (R ) is already in the table given, you just need to sum it up and then calculate the benets of each by subtracting w+a+r to the production sold by each rm and you will get the prots (B) I.e. : SASA = 10 (w) + 4 (a) + 1 (r) = 15 millions , as they sold a production for a value of 17 , their prots (B) are 2 million . BENEFITS SASA = 2 MILLION D SIMON = 10 MILLION (the production bought to the FARMERS (70 M) need to be taken into account as a cost) FARMERS = 40 MILLIONS AGGREGATE INCOMES sasa = 10 + 4 +1 +2 = 17 millions don simon = 50 + 5 +15 + 10 = 70 millions farmers = 10 + 20 + 40 = 70 millions They all sum 157 millions, the same amount as the value of the quantity produced, then that implies that GDP = INCOME d. EXPENDITURE = C+ I + G + (X-IM) C = 12 millions (SASA) + 140 millions (D SIMON) = 152 millions I= 2 millions (Trucks bought by d simon) X= 3 millions (200 cars exported) EXPENDITURE = 152 + 2 +3 =157 millions GDP = INCOME = EXPENDITURE

e) As we compared before the production (GDP) has the same monetary value as the Income and the expenditures

f) S-I= DEF + SBC s= households savings (s= yd -c = (Y T) + INT + Z - C) i= private investment as we dont have public sector the DEF = 0 . also taxes (T) , interest of the debt (INT) and transfers to the private sector (Z) are 0 so.. s= y - c S= I + SBC (X-IM) y-c= I + (X- IM) 157 -152 = 2 + 3 5=5 so we can say that the equality is satised for Santa Ana

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