From GDP to Consumption and savings

Gross Domestic Product: the darling
data of Economic Indicators
 It
is the dollar amount of all final goods and
services produced in a country within a given
time frame.
 Measure of a countries overall economic
 Has to be produced, here, and legal
 Goes
by national spending
 Add up the following Government Spending
(G), Consumer Spending (C), Business
Investment Spending (Ig), Net Export
Spending (Xn)
 Real
 Nominal
 Per
 GDP Gap
 Nominal
GDP is in current dollars (not
adjusted for inflation)
 Real GDP has been adjusted for inflation
 United
States: $16.8 Trillion
 China: $9.2 Trillion
 Kazakhstan: $224 Billion
 Croatia: $57 Billion
 United
States: $53,143
 Croatia: $13,530
 Kazakhstan: $13,172
 China: $6,807
can give you an idea of a countries standard
of living (GDP amount per person)
 However, GDP per capita is a better indicator
 Difference
in Real GDP and potential GDP
Remember our ABC points on the PPF
 Potential
is based on FE or PPF
Used/second hand goods,
 Gifts or transfer payments
 Intermediate Good
 Stocks
 Unreported business income (tips)
 Illegal activities
 Transactions between banks
 Volunteer or family work
 US corporate production overseas
 Was
this/will this, be counted
somewhere else?
 Was something finished and final
 This
one is based on incomes not output
 GDP Income Approach:
Wages (of all employees)
Rents (tenant, lease payments)
Interest (savings and bonds payments)
Profits (net income of businesses, corporate
Statistical adjustment (indirect business tax,
net foreign factor income in US)
Why do we not use this one as much?
Less accurate because people lie!
If Consumption is around 70% of GDP then policy
makers will want to know amount of
Consumption and Savings
 GDP – Depreciation of Fixed Capital = NDP
 NDP – Business Taxes – Foreign Factor Income +
Our FFI = National Income (NI)
 NI – Social Security – Corporate Income Tax –
Undistributed Corporate Profits + Transfer
Payments = Personal Income (PI)
 PI –Income Tax + Credit = Disposable Income (DI)
 DI – credit payments = Household Income
 At this point they can consume or save
(consumption to GDP and Savings to Banks)