1. Measuring National Output and National Income

6. Value Added 1.00 $ Total value added .20 1.00 Retail sale (4) .15 .80 Shipping (3) .15 .65 Refining (2) .50 $ .50 $ Oil drilling (1) VALUE ADDED VALUE OF SALES STAGE OF PRODUCTION Value Added in the Production of a Gallon of Gasoline (Hypothetical Numbers)

14. Components of GDP, 1999: The Expenditure Approach Note: Numbers may not add exactly because of rounding. Source: U.S. Department of Commerce, Bureau of Economic Analysis. 13.4 1,244.2 Imports ( IM ) 10.6 990.2 Exports ( EX )  2.7  254.0 Net exports (EX – IM) 11.5 1,065.8 State and local 6.1 568.6 Federal 17.6 1,634.4 Government consumption and gross investment (G) 0.5 43.3 Change in business inventories 4.3 403.8 Residential 12.9 1,203.1 Nonresidential 17.7 1,650.1 Gross private domestic investment (l) 39.4 3,661.9 Services 19.8 1,845.5 Nondurable goods 8.2 761.3 Durable goods 67.4 6,268.7 Personal consumption expenditures (C) 100.0 9,299.2 Total gross domestic product PERCENTAGE OF GDP BILLIONS OF DOLLARS Components of GDP, 1999: The Expenditure Approach

21. The Income Approach 7.4 689.7 Indirect taxes minus subsidies 0.1 11.0 Net factor payments to the rest of the world 9.2 856.0 Corporate profits 5.5 507.1 Net interest 1.5 143.4 Rental income Source: See Table 17.2.  0.3  32.2 Other 12.5 1,161.0 Depreciation 7.1 663.5 Proprietors’ income 57.0 5,299.8 Compensation of employees 80.3 7,469.7 National income 100.0 9,299.2 Gross domestic product PERCENTAGE OF GDP BILLIONS OF DOLLARS Components of GDP, 1999: The Income Approach

22. From GDP to Disposable Income Source: See Table 17.2. 6,637.7 Equals: disposable personal income  1,152.0 Less: personal taxes 7,789.6 Equals: personal income +1,011.0 Plus: transfer payments to persons + 456.6 Plus: personal interest income received from the government and consumers  662.1 Less: social insurance payments  485.7 Less: corporate profits minus dividends 7,469.7 Equals: national income  675.5 Less: indirect taxes minus subsidies plus other 8,127.1 Equals: net national product (NNP)  1,161.0 Less: depreciation 9,288.2 Equals: GNP  316.9 Less: payments of factor income to the rest of the world + 305.9 Plus: receipts of factor income from the rest of the world 9,299.2 GDP DOLLARS (BILLIONS) GDP, GNP, NNP, National Income, Personal Income, and Disposable Personal Income, 1999

25. Disposable Personal Income and Personal Saving  194.8 Interest paid by consumers to business  6,268.7 Personal consumption expenditures Source: See Table 17.2. 2.2% Personal savings as a percentage of disposable personal income: 147.6 Equals: personal saving  26.6 Personal transfer payments to foreigners Less: 6,637.7 Disposable personal income DOLLARS (BILLIONS) Disposable Personal Income and Personal Saving, 1999

29. Calculating Real GDP GDP IN GDP IN GDP IN GDP IN YEAR 2 YEAR 1 YEAR 2 YEAR 1 Nominal GDP in year 2 Nominal GDP in year 1 $19.20 $18.40 $15.10 $12.10 Total 10.80 9.00 8.40 7.00 .90 .70 12 10 Good C 4.00 7.00 1.20 2.10 1.00 .30 4 7 Good B $4.40 $2.40 $5.50 $3.00 $ .40 $.50 11 6 Good A P 2 X Q 2 P 2 x Q 1 P 1 x Q 2 P 1 x Q 1 P 2 P 1 Q 2 Q 1 PRICES PRICES PRICES PRICES YEAR 2 YEAR 1 YEAR 2 YEAR 1 YEAR 2 YEAR 2 YEAR 1 YEAR 1 PRICE PER UNIT PRODUCTION IN IN IN IN (8) (7) (6) (5) (4) (3) (2) (1) A Three-Good Economy

36. Per Capita GDP/GNP Source: The World Bank Atlas, 2000. 11,650 Greece 100 Ethiopia 14,080 Spain 210 Nepal 15,940 Israel 230 Rwanda 18,340 Ireland 430 India 20,020 Canada 480 Pakistan 20,250 Italy 680 Indonesia 20,300 Australia 750 China 21,400 United Kingdom 1,050 Philippines 24,110 Finland 1,390 Romania 24,760 Netherlands 1,520 Jordan 24,940 France 2,600 Colombia 25,380 Belgium 2,880 South Africa 25,620 Sweden 3,160 Turkey 25,850 Germany 3,970 Mexico 26,850 Austria 4,570 Brazil 29,340 United States 5,040 Czech Republic 32,380 Japan 7,970 South Korea 33,260 Denmark 8,970 Argentina 34,330 Norway 10,690 Portugal 40,080 Switzerland U.S. DOLLARS COUNTRY U.S. DOLLARS COUNTRY Per Capita GNP for Selected Countries, 1998