Lesson 10

1. E>R>E phrases (to be written out from the English text) for translation by ear.

MEASURING GDP

Gross Domestic Product is measured in two basic ways: (a) the expenditure approach, (b) the income approach. Figure 1 illustrates these ap­proaches with a version of the circular flow model, which shows that everything bought (expenditures) is sold by someone who receives income from the sale.

Ideally, both methods would yield identical numbers because spending on output flows as income to resource owners. Unfortunately, most of the data available are recorded for ac­counting purposes, so the figures used to calculate GDP are only roughly suited for economic analysis. Figure 2 displays the proportional makeup of GDP by major types of income and expenditures.

THE EXPENDITURE APPROACH

Measuring GDP by the expenditure approach leads us to the final buyers of all U.S. output. Aggregate Expenditures are the sum of (a) consumer spending, (b) business investment, (c) government purchases, and (d) net spending by foreigners. This summation echoes the sources of Aggregate Demand described in a previous chapter. Figure 2 shows the division of the na­tional pie into consumption (C), investment (I), government purchases (G), and net exports [i.e., exports - imports (X - M)].³

Personal Consumption Expenditures (C): Household outlays include spending on non­durable goods (food and clothing), durable goods (appliances and cars), and services (e.g., medical care or haircuts). Personal consumption expenditures (C) are the values of all commodities and services that households and individuals buy. This category is familiar because we all engage in consumption every day.

Business Investment (I): Remember that in­vestment, as economists use the term, does not refer to the flows of money or documents that we term financial investment. Economic investment (I) refers to acquisition of new physical capital.

Business spending for new capital is called Gross Private Domestic Investment, or GPDI. Gross means that all purchases of new buildings, equipment, and the like are included. Whether investment replaces obsolete or worn-out capi­tal does not matter. Private means that government investment is excluded. Domestic means that the new capital is bought from U.S. pro­ducers. We exclude foreign investments by American firms, but investment by foreign com­panies in the United States is part of our GPDI. The major components of investment spending are: 1) All new construction, including housing; 2) All final purchases of new equipment (e.g., machinery and tools); 3) Changes in business inventories.

New production facilities, apartment build­ings, and office space clearly fit the definition of investment, but why not treat residential con­struction as consumer spending? One reason is that housing can be built for rental purposes. In addition, the useful life of housing is much longer than most consumer goods. Consequently, hous­ing is regarded as a capital good, and all new construction is included in investment. On the other hand, the rental value of owner-occupied housing is considered consumption; a home produces shelter year after year.

The second item, capital equipment, ex­pands the productive capacity of firms and, thus, is clearly investment. But what about stocks and bonds? Securities are financial rather than eco­nomic investments. Purchases of new stocks and bonds may facilitate business spending on real capital, but security transactions merely transfer purchasing power from buyers of stock to sellers without directly boosting productive ca­pacity. Thus, purely financial transactions are not economic investment.

Inventory growth is also investment, while declines are disinvestment. Business inventories include (a) raw materials or intermediate goods bought for use as productive inputs and (b) fin­ished goods held in stock to meet customers' de­mands. Customers quickly switch to other firms if your firm fails to deliver promptly. Adjust­ments for inventory changes are needed because we use sales data to estimate production. If in­ventory growth were ignored, GDP would un­derstate total production. Inventory growth adds to investment, while shrinkage reduces in­vestment. Goods held in business inventories should be counted in GDP in the year produced, not the year sold. Inventories vary from year to year, so changes in inventories must be esti­mated to consistently measure total production and our national income.

Government Purchases (G): We consume commodities and services both as private indi­viduals and collectively, through government. Government may buy goods in finished form from private firms, or it may pay for intermedi­ate (unfinished) goods or basic resources to pro­duce the final goods and services it provides. The most important resource government buys is its employees' labor.

Government purchases of goods and ser­vices (G), ranging from pay for police officers to fire hydrants to cancer research, are then pro­vided at zero or minimal prices to their users. Many goods and services that government pur­chases and then provides are not sold in mar­kets, so their value cannot be known with precision. Thus, all government goods enter the GDP accounts at the prices government pays for them—for GDP accounting purposes, govern­ment is assumed to add nothing to the value of the labor and other resources it uses.

Note that government purchases do not in­clude transfer payments (e.g., Social Security or federal payments for disaster relief) that merely shift funds from one set of households to another set. Because transfer payments do not require production, they affect consumption and, conse­quently, Aggregate Demand only when recipi­ents spend the funds received from government.

Net Exports (X-M): Net exports are defined as exports (X) minus imports (M). Exports are goods manufactured domestically and bought by foreigners. We clearly must include exports in GDP to mea­sure the value of all production in a year. But do imports reflect American production? The obvious answer is no. Imports are goods produced in foreign countries and consumed or invested in the United States.

A Hyundai purchased in the United States is part of Korean production (and adds to Korean consumption when the owners of re­sources that produce the car spend their pay). When Americans buy a Hyundai, the price paid to Korean producers must be subtracted from U.S. consumption or it will appear that the car was produced in the United States. Similarly, if Swiss machinery is installed in an American fac­tory, the purchase appears in the U.S. invest­ment category, but it should be subtracted from U.S. GDP. Thus, in the expenditures approach to calculating GDP, imports are subtracted from exports to estimate the net effect of foreign trade on our economy.

To summarize: Using the expenditure ap­proach, Gross Domestic Product is the sum of consumer spending (C), business investment (I), government spending for goods and services (G), and net exports (X - M):C + I + G + (X-M) = GDP.

THE INCOME APPROACH

All spending ultimately translates into income. Thus, national output calculated by the expen­diture approach must equal National Income. National Income (NI) is computed by summing all payments to resource owners—wages, rents, interest, and profits. Although National Income conceptually sums workers' wages for labor, interest paid to capi­tal owners, landowners' rents, and entrepre­neurial profits, the limitations of accounting data cause NI to be measured as the sum of five slightly different categories: (a) wages and salaries, (b) non-corporate proprietors' income, (c) corporate profits before taxes, (d) rental in­come, and (e) interest. Table 2 presents pro­portions and trends in these income payments for selected years.

Wages and Salaries: This category covers not only money wages but also all employees' fringe benefits (e.g., bonuses, stock options, health insurance, paid vacations, and firms' con­tributions to Social Security). Table 2 shows that wages and salaries increasingly dominate U.S. National Income. The share of wages has risen from less than half of National Income in 1900 to roughly three-fourths today.

Proprietors' Income: National Income accountants split accounting profit into two categories: proprietors' incomes and corporate profits. Proprietors' incomes are received by sole proprietors, partnerships, certain profes­sional associations, and unincorporated farms. Included in farm income is an estimate of the value of food grown and consumed on farms— and or from home gardens. Although not mar­keted, this clearly represents production.

Much of this income category represents wages, interest, or rent that proprietors would have earned if they had not operated their own firms. Isolating this category according to purely economic concepts to identify opportunity costs is impossible, however, given the limitations of accounting data. Thus, we consider proprietors' income as "profit," but only for purposes of GDP accounting.

Proprietors' shares of National Income were falling until recently, declining from 17.3% in 1929 to only 7.8% in 1980. Wages grew in part when small family farmers were attracted by relatively more remunerative industrial jobs. A recent rebound in proprietors' shares may re­flect resurgent entrepreneurship,—or it may merely track growing tendencies for firms to rely less on career employees and more on in­dependent contractors, many of whom may only reluctantly be self-employed.

Corporate Profit: Corporations use their ac­counting profit in three ways. First, they must pay corporate income taxes. Second, they may pay stockholders dividends from their after-tax income. Finally, remaining profits are kept in the firm as working capital or to finance either internal expansion or external acquisitions (mergers and takeovers). Economists call profit kept by firms undistributed corporate profits; to ac­countants, they are retained earnings. Much of the category called corporate profit actually rep­resents the interest forgone had stockholders bought bonds instead of stock. Again, because isolating pure economic profit from opportu­nity costs is not feasible, the convention is to lump all corporate profits with proprietors' in­come in the accounting term "profit."

Proprietors' income has fallen as a per­centage of National Income, so you might ex­pect growth in the share accruing to corporations. A glance at Table 2, however, re­veals a trend for corporate profit to shrink rel­ative to National Income. What accounts for the rise in the share of wages and erratic declines in both corporate and proprietors' incomes? A par­tial answer lies in the fact that government out­lays as a percentage of total output rose markedly during this century. Most govern­ment-provided services require substantial labor, so the share of wages and salaries has grown steadily.

Rental Income: Accounting rents are usually derived from the leasing of real property (such as land, houses, offices), but they can be obtained from renting any asset (e.g., videotapes or U-Haul trailers). Determining what part con­forms to economic rent as a payment solely for the use of land is impossible, so again we use ac­counting classifications. As you see in Table 2, rental income is now the smallest accounting cat­egory in National Income.

Interest: Interest is also rather self-ex­planatory—payments made for the use of bor­rowed capital (usually, financial capital). Interest payments are made by borrowers to banks or to holders of bonds, or by banks to their depositors. (Banks act primarily as specialized intermediaries. A bank arranges loans of its de­positors' funds to borrowers. Thus, depositors— not banks—are the ultimate lenders.) National Income accounting conventions treat interest paid to holders of government bonds as a transfer payment and exclude it from the interest component of National Income. If interest on government bonds were included, interest would have been roughly one-seventh of National Income in 1993.

RECONCILING GDP AND NI

Gross Private Domestic Investment (GPDI) overstates growth of the nation's stock of capi­tal because some capital wears out each year. Accountants refer to the decline in value of cap­ital because of wear and tear or obsolescence as depreciation. But actual depreciation data reflect rapid ac­counting write-offs to exploit advantageous tax treatments. The overstated "depreciation" com­puted by accountants is termed the capital con­sumption allowance by economists, but no better data are available.

Subtracting depreciation from Gross Private Domestic Investment yields Net Private Domestic Investment, an estimate of annual growth in a nation's capital. All else being equal, de­preciation reduces capital owners' wealth. Thus, one step in reconciling GDP and NI entails sub­tracting depreciation from GDP to compute Net Domestic Product (NDP). Conceptually, NDP es­timates how much we could consume in a given year while maintaining a constant stock of cap­ital throughout that year. Net Domestic Product (NDP) it the net value of an economy's annual output after adjusting for depreciation.

Failure to consider depreciation would cause overstatement of the net value of production. In a sense, depreciation represents a "death rate of capital" that must be subtracted from the "birth rate of capital" (GPDI) to arrive at net capital formation.

Another major adjustment is required to rec­oncile GDP and National Income. The funds paid for goods and the funds firms receive are not equal. Sales and excise taxes, collectively known as indirect business taxes, drive wedges between what consumers or investors spend and sellers' net re­ceipts. For example, sales taxes must be subtracted from a buyer's payment for a new car before in­come can be distributed to auto workers or man­ufacturers. Consequently, indirect business taxes must be subtracted from Net Domestic Product. We reconcile GDP and National Income only after making these and other miscellaneous adjust­ments, as summarized in Table 3.

If National Income accountants relied primar­ily on income tax returns, calculating GDP would entail summing all declared incomes and then adding indirect business taxes and depre­ciation. But this strategy depends on honest tax returns, and even the latest figures available would be relatively out-of-date because (a) tax returns filed on April 15 are for the preceding year, and (b) it takes time for the IRS (Internal Revenue Service) to compile and interpret the returns. For these reasons and more, National Income is calculated primarily as a double check on GDP figures.

An alternative is to collect all sales figures for a year. Most firms are subject to taxes re­ported monthly to government agencies, so sales data are available on a regular basis. But what then? Merely summing all sales revenues entails double counting. For example, if USX's steel sales are added to Ford's sales, we count USX's out­put twice: when steel is sold to Ford and again when Ford sells new cars and trucks. To avoid double counting, National Income accountants use the value-added tech­nique. A firm's value added is computed by subtracting from its sales revenue any purchases of interme­diate goods from other firms. This leaves only the value of the firm's own pro­duction: its value added. National income ac­countants then sum the value added by each firm. Summing domestic values added by all firms yields reasonably accurate GDP figures, after adjusting for such things as inventory changes, the imputed (estimated) rental values of owner-occupied housing, and the imputed values of food grown and consumed on the farm—from your home garden.

MOVING FROM GDP TO DISPOSABLE PERSONAL INCOME

National Income (NI), GDP, Net Domestic Product (NDP), Personal Income (PI), and Disposable Personal Income (DPI) tend to move together. Therefore, in future chapters we often use a single economic model to explain how all these data are determined. Nevertheless, un­derstanding how they differ helps illustrate how macroeconomics is linked to everyday life. You already know that capital consumption al­lowances (depreciation) are subtracted from GDP to compute Net Domestic Product (NDP), and that subtracting indirect business taxes (e.g., sales taxes) from NDP yields all income earned by suppliers of productive resources, or National Income (NI). More adjustments are needed, however, before arriving at household income before taxes (Personal Income) and the after-tax income households actually have left to spend (Disposable Personal Income).

From NI to Personal Income (PI): National Income includes wages, interest, rent, proprietors' income, and corporate profit. Firms often serve as tax collection points; in fact, some people never see parts of the income at­tributed to them. For example, corporate taxes must be paid before stockholders have claims on corporate income; these taxes must be sub­tracted from National Income. Dividends are parts of stockholders' Personal Income, but cor­porate retained earnings (undistributed corpo­rate profit) must also be subtracted from National Income. Moreover, all employers are legally obligated to match employees' Social Security contributions. National income ac­counts subtract all Social Security taxes from NI on this journey toward Personal Income.

Personal Income (PI): is the money income re­ceived by households before they pay their personal taxes.

In addition to household income earned but not received, two forms of income are received but not earned. A growing share of our National Income is devoted to government transfer pay­ments (e.g., welfare payments). Many firms also engage in charitable activities. Funds transferred through either government or business to private individuals must be added to National Income. At this point, we finally arrive at the total amount of personal income households receive.

From PI to Disposable Personal Income (DPI): You might think that Personal Income is the amount available for personal consumption and saving, but direct taxes on individuals must be paid from Personal Income. Disposable Personal Income (DPI) is income households can choose to consume or save after subtracting income taxes from Personal Income. Table 4 details the breakdown from GDP to DPI for selected years.

Ralph. T. Byrns, Gerald W. Stone Ральф Т. Бернс, Джеральд В.Стоун

Lesson 10

2. R>E phrases (to be written out from the Russian text) for translation from page.

Тема 15: измерение объема национального производства, национального дохода и уровня цен

Анализ экономического состояния страны основывается на системе нацио­нальных счетов, которые отражают объем совокупного выпуска продукции, национальный доход, структуру доходов и расходов общества. Основным показателем, с помощью которого измеряют объем национального производства, служит валовой национальный продукт, или — кратко — ВНП. Он определяется как суммарная рыночная стоимость всех конечных товаров и услуг, произведенных в экономике за год, при этом исключаются все непроизводственные сделки (финансовые или связанные с перепродажей конечной продукции). При расчете ВНП не учитываются промежуточные продукты, предназначенные для дальнейшей переработки или перепродажи. Это позволяет избежать повторного (двойного) счета, который завышает масштабы производства. Рыночная стоимость совокупного выпуска продукции равна сумме добавленных стоимостей, созданных всеми фирмами в эконо­мике.

ВНП можно измерить двумя способами: либо суммированием всех расходов общества на приобретение товаров и услуг, произведенных в данном году, либо посредством сложения денежных доходов, полученных в результате производства продукции в этом же году.

К основным компонентам расходов общества, учитываемых при подсчете ВНП, относятся личные потребительские расходы, валовые внутренние ин­вестиции, государственные закупки товаров и услуг и чистый экспорт. В доходы общества включаются отчисления на потребление капитала (амор­тизация), косвенные налоги, вознаграждение за труд наемным работникам, рентные платежи, процент, доходы от собственности и прибыль корпораций. Хотя ВНП отражает стоимость только конечных товаров и услуг, он все-таки содержит повторный счет, так как включает валовые инвестиции, и, следо­вательно, амортизационные отчисления. Поэтому для более точного из­мерения национального производства используется показатель чистого на­ционального продукта, или ЧНП. Он отличается от ВНП на величину амортизации, то есть включает только чистые инвестиции.

Национальный доход страны рассчитывается на основе добавленной стоимо­сти, созданной в течение года. Он характеризует чистый доход общества, который измеряется суммой цен всех факторов производства. Поэтому ве­личина национального дохода равна ЧНП за вычетом косвенных налогов. С точки зрения собственников факторов производства национальный до­ход — это заработанный доход. Но они, во-первых, должны вносить взносы на социальное страхование, выплачивать налоги на прибыль и направлять определенную часть дохода в производство (нераспределенная прибыль); во-вторых, могут получать доходы, не имеющие отношения к использованию принадлежащих им факторов производства (например, трансфертные пла­тежи). По этим причинам личный (полученный) доход не совпадает с на­циональным доходом. Его объем равен национальному доходу минус выплаты на социальное страхование, налоги на прибыль корпораций, нераспреде­ленная прибыль и плюс трансферты. Но личный доход, в свою очередь, превышает доход, которым домашние хозяйства располагают в окончательном виде. Владельцы личного дохода должны уплатить государству индивидуаль­ные налоги. После этого у них остается доход, который они направляют на потребление и сбережение — располагаемый доход.

Макроэкономические показатели национального производства выражаются в рыночных ценах. Когда они измеряются в текущих ценах (ценах текущего года), их величины имеют номинальное выражение. Если же используются постоянные цены, то они приобретают реальное значение. Между номиналь­ными и реальными величинами ВНП, ЧНП и других показателей нацио­нальных счетов могут быть существенные расхождения в связи с изменением уровня цен.

Для того, чтобы выявить реальное изменение объема национального произ­водства, необходимо использовать методы инфлирования (если цены растут) и дефлирования (если цены падают). Наиболее простой метод инфлирования или дефлирования ВНП — это деление номинального ВНП на индекс цен (дефлятор ВНП).

Подчеркивая значение показателей ВНП, ЧНП, национального дохода для анализа экономического состояния страны, стоит обратить внимание на то, что они дают представление лишь о материальном благосостоянии общества, но не являются полной характеристикой его реального благосостояния. Даже самый объемный показатель национального выпуска продукции — ВНП — не учитывает факторы, которые оказывают на благосостояние весомое вли­яние. Речь идет о нерыночных операциях, качественных параметрах продук­ции, характере распределения ВНП, состоянии окружающей среды, теневой экономике и т. д. Для учета такого рода факторов вводится понятие чистого экономического благосостояния.

Макро\ Микроэкономика. Практикум. Н.З.Волчек, Ю.А.Огибин, М.А.Скляр

Lesson 10

5. Russian text to be translated into English from page.