ECONOMICSApril 28, 2015

Chapter 12: Gross Domestic Product and Growth

Section 12.1B: Gross Domestic Product

OTHER INCOME AND OUTPUT MEASURES

The GDP is only one of the measures provided by the NIPA (National Income and Product Accounts).

While the GDP is the primary measurement of the economy, other measures derived from the GDP are more useful.

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OTHER INCOME AND OUTPUT MEASURES

The gross national product (GNP) shows the income earned by US-owned companies and US citizens, wherever they are.

GNP does not use depreciation in its calculations. However, GNP minus the cost of depreciation of capital equipment is called Net National Product (NNP).

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OTHER INCOME AND OUTPUT MEASURES

NNP does not take into account taxes, so NNP minus sales and excise taxes equals National Income (NI).

NI minus companies’ reinvested profits, income taxes & all Social Security taxes, PLUS other household income equals Personal Income (PI).

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OTHER INCOME AND OUTPUT MEASURES

PI minus individual income taxes equals Disposable Personal Income (DPI).

DPI is useful to measure the actual impact of economic policies on individual citizens.

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INFLUENCES ON GDP

Laws of supply and demand on a nationwide scale are referred to as aggregate supply and aggregate demand.

Aggregate supply is figured by averaging the prices in the economy and finding the comparison to the real GDP.

12.1

INFLUENCES ON GDP

Aggregate demand is the amount of goods and services in the economy that will be purchased at all possible price levels.

Any shift in the aggregate supply or aggregate demand will have an impact on the real GDP and on the price level.

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INFLUENCES ON GDP

This, in turn, influences household wealth (available spendable income) which influences demand for products.

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CHECK QUESTION 12.1BWrite complete question and answer on your Bell Ringer form.

As aggregate demand rises, what happens to the real GDP? to the price level?