Overview
Purpose:
To introduce the viewers to GNP and other concepts of the National Income accounts and to show how they help us understand the extraordinary growth of the U.S. economy in the 20th century.
Objectives:
1. Gross national product (GNP) in current prices is the sum of all final transactions in the product markets.
a) Gross national product in constant prices represents real GNP from which the effects of inflationary price changes have been removed.
b) GNP involves only final transactions (eliminating intermediate goods) or, equivalently, values-added (eliminating purchases by firms from other firms).
2. The total production of an economy and the total income of the economy represent two different ways of looking at the same thing, as represented in the circular flow.
a) In a simplified economy, from the product side, GNP is composed of consumer goods (C), investment goods (I) and government purchases of goods and services (C).
b) In a simplified economy, from the income side, GNP is composed of: before-tax wages and salaries, rents, interest and profits; or consumption (C), saving (S), and taxes (T).
3. The growth of real GNP and GNP per capita over this century has meant vast increases in U.S. living standards. However;
a) continued growth of GNP is not automatic, but involves continuing development of new products and methods; and
b) the growth of GNP itself involves important costs, and thus GNP is a very imperfect measure of economic well-being.
| Key Economic Concepts circular flow, taxes, government spending current prices, gross national product constant prices, real vs. money, consumption, economic growth investment, product = income, saving, double-counting |
| Contemporary Issues In the late 1990s that was a good deal of debate about the possibility that the U.S. national income accounts over-estimated inflation and under-estimated real growth. There were at least two possible culprits. First, some analysts suggested that the little inflation that was measured in the booming high-tech markets was all due to quality improvements. Second, the national income accounts still do not have good output or productivity measures for the services sectors (which account for about 75% of the U.S. economy). Why is it important, especially from a policy perspective, to measure inflation as accurately as possible? |
|
