Krugman PPT c12 06 - University of California, Berkeley
Chapter 12
National Income Accounting and the Balance of Payments
Slides prepared by Thomas Bishop
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? National income accounts
measures of national income measures of value of production measures of value of expenditure
? National saving, investment and the current account
? Balance of payments accounts
Copyright ? 2006 Pearson Addison-Wesley. All rights reserved.
12-2
National Income Accounts
? Records the value of national income that results from production and expenditure.
Producers earn income from buyers who spend money on goods and services.
The amount of expenditure by buyers = the amount of income for sellers = the value of production.
National income is often defined to be the income earned by a nation's factors of production.
Copyright ? 2006 Pearson Addison-Wesley. All rights reserved.
12-3
National Income Accounts: GNP
? Gross national product (GNP) is the value of all final goods and services produced by a nation's factors of production in a given time period.
What are factors of production? workers (labor), physical capital (like factories and equipment), natural resources and other factors that are used to produce goods and services.
The value of final goods and services produced by US labor, capital and natural resources are counted as US GNP.
Copyright ? 2006 Pearson Addison-Wesley. All rights reserved.
12-4
National Income Accounts: GNP (cont.)
? GNP is calculated by adding the value of expenditure on final goods and services produced.
? There are 4 types of expenditure:
? Consumption: expenditure by domestic residents ? Investment: expenditure by firms on plants & equipment ? Government purchases: expenditure by governments on
goods and services ? Current account balance (exports minus imports): net
expenditure by foreigners on domestic goods and services
Copyright ? 2006 Pearson Addison-Wesley. All rights reserved.
12-5
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