Eco 2601 终极版

Group 5

Members: Ginger, Leona, Maggie, Richard

What is GDP?

• GDP is the market value of final goods and services in a country during the given period.

1. Type of goods and services (no intermediate goods)

2. Location (within the country)

3. Time (in the current year)

• 7.1 Peter operates a garage which provides customers with car repairing services.

？Discuss how the 2008 GDP and its components were affected under the three different approaches of GDP accounting.

• In March 2008 he bought a 5-year old second hand car from his customer at a price of $60,000

• He paid his worker $5,000 to repair and clean up the engine (for improvements)

• then successfully sold the car to another customer for $68,000 in June 2008

Review of the three approaches

• Expenditure approach

Consumption + Investment + Government expenditure + Net export

• Income approach

Labor income + Capital income

• Outcome approach

Adding up the contribution to the final output by every firm in the economy

Expenditure Approach

Total car price $68,000

Second hand car $60,000

(previous years)

Service of improvement

$8,000

(Current year)

• Total output = $8,000 (C) + $0 (I) + $0 (G) + $0(NX)

Income Approach

• Labor income

Wage of workers $5,000 + Salary of Peter $ X

• Capital Income

Profit = Revenue $68,000 – Cost of second hand car $60,000 – Salary/Wage expenses $(5,000 + X)

Profit $(3,000 – X)

• Total output

$5,000 + $X + $(3,000 – X) = $8,000

Output ApproachStage of Production

Value of Output

Cost of intermediateinput

ValueAdded

$60,000 $0 $60,000

$68,000 $60,000 $8,000

$68,000

Output approach & Sum-up

• Total output = $8,000• The value of the second hand car should not by

calculated. Why?• It is the value added in previous years, not the

current year.

• The outputs obtained under the three approaches are the same.

• When calculating GDP, we should pay attention to the time and location of production.

7.2 a) A Chinese-owned ice-cream producer operating in the U.S.

• Total sales revenue

• Total costs include the following:

Wages paid to U.S. workers

Wages paid to Chinese workers

Interest paid to a U.S. bank

Rent paid to a U.S. landlord

• Total costs

$1,000

$500

$100

$40

$60

$700

Accounting Record

7.2 a) (i) What is the value of U.S. GDP contributed by this firm usingthe expenditure approach? Which component(s) of the expenditureapproach will be involved?

• Expenditure approach







• Total costs

$1,000

$500

$100

$40

$60

$700

Consumption Expenditure (C): $1000Contribution to U.S. GDP=$1000(C)+$0(I)+$0(G)+$0(NX) = $1000

Ice-cream: Final goodsMarket value: Sales revenue

Sold to household: consumption

7.2 a) (ii) What is the value of U.S. GDP contributed by this firmusing the income approach? Which component(s) of the incomeapproach will be involved?

• Income approach• Total sales revenue






• Total costs

$1,000

$500

$100

$40

$60

$700

Labour

Labour income: $500+$100=$600

Capital income: ($1000-$700)+$40+$60=$400

Contribution to U.S. GDP: $600+$400=$1000

7.2 a) (iii) How much is this firm’s contribution to the Chinese GNP?

• Chinese GNP –the value of output produced by Chinese







• Total costs

$1,000

$500

$100

$40

$60

$700

Contribution to Chinese GNP:($1000-$700) + $100 = $400

7.2 b) If a Canadian tourist drinks German beer in arestaurant in the U.S., how will the U.S. GDP be affected?

• Assumption:Cost of German beer: $5Selling price of German beer: $8

• U.S. GDPConsumption Expenditure(C): $8

Imports(M): $5

GDP=C+I+G+X-M

U.S. GDP is affected by: + $8 - $5 = +$3

7.3 Country X produces only two products in 2005: canned salmon fish and truck.Stage ofproduction

Output produced Outputproduced by

Market value of output

Required intermediateinput

Market value of intermediate input

First Fresh salmon fish

Local fishermen

$ 3 million

None Zero

Final Canned salmon fish

Localfactory

$ 5 million

Freshsalmon fish

$ 3 million

Stage ofproduction

Output produced

Output produced by



Marketvalue of intermediate input

First Engine Factory located in foreign country

$ 6 million

None Zero

Final Truck Local factory $ 9 million

Engine $ 6 million

7.3

Canned salmon fish 1/2 of the output 1/2 of the output

Purchased by Local households Foreigners

truck 1/3 of the output

1/3 of the output

1/3 of the output

Purchase/ unsold

Local firms government unsold

7.3 (a)

• how each of the four products (fresh salmon fish, canned salmon fish, engine and truck) contributes to county X’s GDP under the output approach;

what is the value of GDP under output approach

Output approach: add up the contribution to the final output of every firm in the

country

Value added = value of output – cost of intermediate input

7.3 (a)Output produced Output

produced by




Fresh salmon fish

Local fishermen

$ 3 million

None Zero

Canned salmon fish

Localfactory

$ 5 million

Freshsalmon fish

$ 3 million

Output produced

Output produced by




Engine Factory located in foreign country

$ 6 million

None Zero

Truck Local factory $ 9 million

Engine $ 6 million

Valueadded

$ 3 million

$ 2 million

Value added

—

$ 3 million

$ 8 million

7.3 (b)

• How country X’s GDP in 2005 would be recorded using the expenditure approach.

• GDP= consumption expenditure

+ investment expenditure

+ government expenditure

+ net export

Final goods/ services

7.3 (b)

Stage ofproduction






Local fishermen

$ 3 million

None Zero


Localfactory

$ 5 million

Freshsalmon fish

$ 3 million

Stage ofproduction

Output produced

Output produced by





$ 6 million

None Zero


Engine $ 6 million

7.3 (b)

Canned salmon fish $ 5 million

1/2 of the output 1/2 of the output


Truck$ 9 million

1/3 of the output

1/3 of the output

1/3 of the output

Purchase/ unsold


C= 1/2 * 5 million = $ 2.5 million

7.3 (b)




Truck$ 9 million

1/3 of the output

1/3 of the output

1/3 of the output

Purchase/ unsold


I= (1/3+ 1/3) * 9 million = $ 6 million

7.3 (b)




Truck$ 9 million

1/3 of the output

1/3 of the output

1/3 of the output

Purchase/ unsold


G=1/3 * 9 million = $ 3 million

7.3 (b)




Truck$ 9 million

1/3 of the output

1/3 of the output

1/3 of the output

Purchase/ unsold


NX= exports – imports= ½ * 5 million – 6 million = $ -3.5 million

7.3 (b)

• GDP= C + I + G + NX

= 2.5 million + 6 million + 3 million – 3.5 million

= $ 8 million

7.3 (c)

• The factory which produces engine earns a profit of $ 0.6 million in 2005 and half of the factory is owned by the citizens of country X.

• Calculate GNP of country X

7.3 (c)

• GNP measures the value of output produced by the nationals.

• GNP = GDP

+ factor income derived by nationals from overseas

- factor income paid to foreigners

7.3 (c)

Stage ofproduction






Local fishermen

$ 3 million

None Zero


Localfactory

$ 5 million

Freshsalmon fish

$ 3 million

Stage ofproduction

Output produced

Output produced by





$ 6 million

None Zero


Engine $ 6 million

earns a profit of $ 0.6 million in 2005 ;half of the factory is owned by the citizens of country X

7.3 (c)

• factor income paid to foreigners = 0factor income derived by overseas nationals

= 1/2 * 0.6 million = $ 0.3 million

• GNP = GDP + income paid to foreigners- income derived by overseas nationals

= 8 million + 0.3 million - 0= $ 8.3 million

7.3 (d)• Explain how each of the activities should be

treated under the national income accounting of country X by income approach:

I. Fisherman A wins $2,000 from playing cards with fisherman B.

∵ not a process of production (no output)

∴ not counted as income

Value of total incomes generated in the process of production



II. Fisherman C catches $ 3,000 of salmon fish and keeps them for his own use.

∵ non-market activity





III. The government pays $ 5,000 welfare payment to an unemployed factory worker.

∵ not incomes generate from production



8.1--DenotationActual output : Y Planned aggregate expenditure: PAEDisposable income: Yd

Net tax (tax minus transfer payments): TAutonomous consumption: a=$200 billionMarginal propensity to consume (MPC): b=0.8Autonomous investment : IP =$20 billionAutonomous government spending: G=$100 billionLump sum tax: T0=$50 billionProportional tax rate: t=0.1Autonomous exports: X=$100 billionMarginal propensity to import (MPM) m=0.12

8.1 a) What is the output gap?Equilibrium level PAE=YPAE= C + IP + G + (X-M)

= (a + bYd ) + IP + G + (X – mY)= [a + b ( Y – T)] + IP + G + (X – mY)= [a + b ( Y – T0 –tY)] + IP + G + (X – mY)= (a-bT0 + IP +G +X) + (b- bt-m)Y

(a-bT0 + IP +G +X) : denoted as A

A + (b- bt-m)Y =Y(a-bT0 + IP +G +X) 200-0.8x50+20+100+1001- b(1-t ) + m = 1-0.8(1 -0.1)+0.12

= $950 (billion)

Output gap=actual output – full employment output= $950-$1000 = $-50 (billion)

C =a +b Yd

M=mY Yd= Y- TT = T0+ t Y

Y =

8.1 b) & c)b) Budget deficit or Budget surplus？

Tax income of government=Lump sum tax +induced tax T= T0 + tY = $50 + 0.1x $950 = $145 (billion)G= $100 (billion)Budget Surplus = $145- $100 = $45 (billion)

c) Value of net exports?Net export = X – M

= X – mY=$100 – 0.12x $950=$-14 (billion)

8.1 d)A ΔA

1-b(1-t)+m 1-b(1-t)+m

investment A Y

ΔY = -Output gap =$50(billion), 1-b(1-t) + m =0.4

ΔA= $50x 0.4= $20 (billion) i.e. Δ IP = 20 (billion)

Interest rate: r

$ 10 billion

1%

Δr = 20 ÷10 x 1% = 2%

Interest rate should decrease by 2%

Y= ΔY=

Δ IP Δr

8.1 e)ΔA

1-b(1-t)+m

m , others , 1-b(1-t) + m

ΔY 1

ΔA 1-b(1-t)+m

multiplier effect will be smaller

ΔY=

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