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    Class 1 National Output

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    safin0012
    The document discusses measures of national output and income, including GDP and GNI. It defines these terms and explains how to calculate nominal and real GDP. It also outlines the three approaches to measuring GDP - the product, expenditure, and income approaches - and discusses shortcomings of using GDP as a measure of economic well-being.

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    Class 1 National Output

    Uploaded by

    safin0012
    17 views14 pages
    The document discusses measures of national output and income, including GDP and GNI. It defines these terms and explains how to calculate nominal and real GDP. It also outlines the three approaches to measuring GDP - the product, expenditure, and income approaches - and discusses shortcomings of using GDP as a measure of economic well-being.

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    The document discusses measures of national output and income, including GDP and GNI. It defines these terms and explains how to calculate nominal and real GDP. It also outlines the three approaches to measuring GDP - the product, expenditure, and income approaches - and discusses shortcomings of using GDP as a measure of economic well-being.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    17 views14 pages

    Class 1 National Output

    Uploaded by

    safin0012
    The document discusses measures of national output and income, including GDP and GNI. It defines these terms and explains how to calculate nominal and real GDP. It also outlines the three approaches to measuring GDP - the product, expenditure, and income approaches - and discusses shortcomings of using GDP as a measure of economic well-being.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    of 14

    Class 1

    Measures of National Output


    Circular flow diagram
    of a closed economy.
    1. Closed Economy: An economy which
    doesn’t trade with other nations because
    it is completely self-reliant.
    Economic Agents (Closed Economy):
    I. Households (Producers of labor in the
    market for factors of production (FOP) &
    consumers of commodities in market for
    goods & services (G&S))
    II. Firms (Producers of commodities in
    market for G&S & consumers of labor in
    market for FOP)
    III. Government (Could act as both)
    The financial market is where the banks
    protect others’ savings or lend to others.
    For open economies there is one more
    economic agent: Foreign economies.
    Factors of Production:
    Broadly there are 4 factors of production in economics:
    1. Land: The piece of land on which the business operations takes
    place. Cost of land is the rents paid to the landowner.
    2. Labor: The service provided by the employees. Cost of labor is the
    wages & salaries paid to the employees.
    3. Capital: The tools and funds used to operate a business. Cost of
    using capital is the rents paid to the owner of capital.
    4. Entrepreneurship: Entrepreneur is a person who organizes land,
    labor and capital to earn a profit. Usually, in economics we define
    cost and revenue from the perspective of an entrepreneur.
    Measures of National Output/Income
    Gross Domestic Product (GDP) Gross National Income (GNI)

    • GDP is the total ‘market value’ of • GNI is the ‘market value’ of all the
    all ‘final goods and services’ ‘final goods and services’ ‘newly
    ‘newly produced’ in a given ‘time produced’ in a given ‘time period
    period (usually a year)’ within the (usually 1 year)’ by the ‘factors of
    ‘boundaries of a country’. production’ ‘owned by the
    citizens’ of a country.

    Relation between GDP & GNP:


    GNI = GDP + Net income from abroad
    Net Income from abroad = Inward Remittance – Outward Remittance
    Keywords
    1. Market Value: GDP is a monetary measure. All goods and services (G&S) are
    measured in their respective prices so that they can be aggregated under a
    single unit or currency.
    2. Final G&S: To avoid double counting the market value of only the final goods
    are taken (not the intermediary goods).
    3. Time Period: GDP is measured as a flow variable. All G&S are not produced
    simultaneously at a single point in time and there is a cost of surveying for GDP
    accounting. Thus, we consider a time interval of GDP (usually 1 year). This
    interval may differ from country to country (i.e., quarterly data in US).
    4. Newly Produced: The market value of G&S produced in 2022 (i.e., secondhand
    products) will not be included in GDP accounting for 2023.
    5. Boundary of a country: The output of any individual or any firm within the
    Bangladeshi borders whether domestic or foreign will be included in the GDP of
    Bangladesh.
    Nominal vs. Real GDP

    Nominal/Money GDP Real GDP


    • •
    Exercise (Calculating Nominal & Real GDP)

    Year Product X P P1X1 P0X1 NGDP RGDP


    Mangoes 30 20
    2015 (Base
    Tangerines 40 40
    Year)
    Apples 35 10
    Mangoes 35 55
    2023 (Current
    Tangerines 50 80
    Year)
    Apples 40 40
    Exercise (Calculating Nominal & Real GDP)

    Year Product X P P1X1 P0X1 NGDP RGDP


    Mangoes 30 20 600 600
    2015 (Base
    Tangerines 40 40 1600 1600 2550 2550
    Year)
    Apples 35 10 350 350
    Mangoes 35 55 1925 700
    2023 (Current
    Tangerines 50 80 4000 2000 7525 3100
    Year)
    Apples 40 40 1600 400
    Approaches to measuring GDP:
    There are 3 approaches to measuring GDP:

    1. Product/Value Added Approach

    2. Expenditure Approach

    3. Income Approach
    Product or Value-Added
    Approach
    In this approach GDP is the summation of
    the total value added of all newly
    produced final G&S in a given period
    within the boundaries of an economy.
    According to the International
    Standard for Industrial Classification (ISIC)
    rev. 3, the economy of a country can be
    divided into 15 sectors. If we take the sum
    of the market value of the
    newly-produced final products produced
    by each of these 15 sectors inside
    Bangladesh for a given year and add the
    tax received from these sectors while
    subtracting the subsidies provided to
    these sectors, we receive the GDP of
    Bangladesh for that year.
    Source: BBS, National Accounts Statistics (2020), Tab. 5
    How does including the
    market value of final products
    remove double-counting
    errors?

    Selling Value
    Stage Product
    price added
    Mining Zinc Blende 10 10

    Roasting Zinc Calcine 25 15

    Refining Zinc Block 40 15

    Fabrication Batteries 60 20

    Gross Value Added (GVA) 60


    Expenditure
    Approach

    Source: BBS, National Accounts Statistics (2020), Tab. 15


    Income Approach
    See topics 2.3.8 to 2.3.8.2 in the
    “Introduction to Macroeconomics with
    Shortcomings of GDP Applications to Bangladesh Economy”
    book for details.

    Measurement Issues Well-being Issues


    1. Non-market Goods & Services: Mothers 1. Environmental Pollution: Costs of
    cooking meals, educating their children environmental degradation or pollution due
    etc. not included. to economic activities is not incorporated.
    2. Underground Economy: Trade of illegal 2. Composition and Distribution of Income:
    commodities such as illegal drugs, weed Whether an economy produces weapons
    etc. cannot be included. relatively more than books won’t matter if
    both have the same price in the market.
    3. Imputed Values: Wage & Salaries are Such an economy may be prone to higher
    imputed to measure the market value of violence or may advocate violence in the
    services. world.
    4. Exclusion of Quality: Improvement in 3. Intangible Sources of Well-being: Crime
    quality of goods & services not reduction, peaceful international relations,
    incorporated. less domestic violence etc. are not
    incorporated in GDP measurement.
    5. Exclusion of Leisure & Effort: Increment in
    leisure due to less stressing work
    environment or the effort of individuals
    doing the same activity is not
    incorporated.

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