Calculating the GDP: Expenditures and Income Approach

Net Domestic Product: 

GDP - Depreciation 

Net National Product GNP: 

GNP - Depreciation 

Gross Investment:

Net Investment + Depreciation

GNP:

GDP + Net Foreign Factor Payment 

Depreciation: The lost of value of capital equipment due to normal wear and tear

Calculating the GDP: Expenditures and Income Approach

Expenditure Approach: 

C + Ig + G + Xn (export-imports)

Income Approach: 

W- Wages (Compensation of Employees/Salaries)
+
R- Rent
+
I- Interest (Money you have to borrow/Money in bank earning interest)
+
P- Profits
+
Statistical Adjustment 

Budget Surplus/Deficit: 

Government Purchases of Goods and Services + Government Transfer Payments - Government Tax and Fee Collections 

+ = Deficit - = Surplus 

Trade Surplus/Deficit:

Exports - Imports

+ = Surplus- = Deficit  

National Income: 

1. Compensation of Employees + Rental Income + Interest Income + Proprietors Income + Corporate Profits

2. GDP - Indirect Business Taxes - Depreciation - Net Foreign Factor Payment 

Disposable Personal Income:

National Income - Personal Household Taxes + Government Transfer Payments 

Stocks and Bonds/Transfer Payments

Stocks and Bonds: Purely Financial Transactions

• Excluded because nothing is being produced

• Transfer Payments: Money government is transferred to a time where you're going to use it.
• Excluded because nothing is being produced
• Ex: Unemployment, Social Security 

Gross Domestic Product & Gross National Product

(Gross Domestic Product): The total value of all final goods and services produced within a country's borders in a given year.

• Includes all production or income earned within the US by the US and foreign producers. It excludes production outside of the US, even by Americans. 

GNP (Gross National Product): The total value of all goods and services produced by Americans in a given year. 

• Includes production or income earned by Americans anywhere in the world. Excludes production of non-Americans even in the United States. 

                            GDP Formula: C + Ig + G + Xn (exports-imports)

Included in GDP:

• C= Consumption
• Purchase of final goods and services
• 67% of the economy
• Ig= Gross Private Domestic Investment
• Reconstruction of New Housing
• New Factory Equipment
• Factory Equipment Maintenance 
• Unsold Inventory of Products Built in a Year
• 17% of the economy
• G= Government Spending 
• School Busses
• Highway
• Guns
• 18% of the economy
• Xn= Net Exports
• EXPORTS - IMPORTS
• -2% of the economy because majority is imports

NOT Included in GDP:

• Intermediate Goods (Inputs) 
• Ex: Lettuce, Cheese in Sandwich 
• Trying to Avoid Double or Multiple Counting 
• Used or Second-Hand Goods 
• Trying to Avoid Double or Multiple Counting 
• Unreported Business Activities
• Ex: Tips
• Stocks and Bonds
• Non-Market Activity
• Ex: Volunteer, Babysitting Without Pay, Work for Self
• Illegal Activity
• Ex: Underground or Black Market 
• Gifts or Transfer Payments
• Ex: Scholarships, Social Security, Unemployment, Giving Someone Money 

Circular Flow

Circular Flow: Represents the transactions within an economy by flows around the circle

• Household: A person or a group of people who share their income
• Firms or Business: An organization that produces goods and services for sale

Excess Supply and Demand

Equilibrium

• The point in which the supply curve intercept with the demand curve 

Excess Demand 

• Occurs when quantity demanded in greater then quantity supplied
• This will result in a shortage 
• Consumer cannot get quantity of the items they want 
• Price Ceiling 
• When government puts a legal limit on how high the price of a product can be 
• Creates a storage 

Excess Supply

• When quantity supplied is greater then quantity demanded
• Creates surplus 
• Producers have inventory that they cannot get ride of 
• Price Floor 
• The lowest legal price a commodity can be sold as
• The government use price floor to keep product prices from becoming too low  

Total Revenue

Defintion 

• It is the total amount of money a firm receives from selling goods and services

Formula

• Product x Quantity
• P x Q
• Make sure you use $$$$$ signs