Output, Inflation and Growth: An Introduction to by D. C. Rowan (auth.)

By D. C. Rowan (auth.)

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Additional resources for Output, Inflation and Growth: An Introduction to Macroeconomics

Sample text

Dealer sells hops to brewer 3. Brewer sells beer to publican 4. 2 the total value of all sales is 141p; the total value of intermediate sales is 81p. Hence the total value added by the farmer, dealer, brewer and publican is: the sum of sales minus purchases from other firms = 60p. What this means is that we cannot count in the national product the value of the hops sold by the farmer and the whole value of the beer of which they become part. And this, as the read~r can see, is precisely the error we made in summing the sales of firms A and B to obtain national product.

Concepts and Measurement of Output 25 Households do not invest. Hence their income must either be consumed or not consumed. The act of abstaining from consumption we define as saving. Hence, from the income disposal side, national = sum o f wages . mcome · · p 1us savmg + rent + prof"Its = consumptiOn However, we already know that national income is identically equal to national expenditure, which is identically equal to consumption plus investment. Hence: national_ consumption _ national _ consumption + investment income = + saving = expenditure So it is obvious that saving = investment We thus reach the conclusion that, as far as our national income accounting framework is concerned, saving and investment are always identically equal.

Thus: gross national product (at market prices) less net indirect taxes equals gross national product (at factor cost) gross national expenditure (at market prices) less net indirect taxes equals gross national expenditure (at factor cost) We have not shown the corresponding adjustment on the income side since, by convention, national income, which is simply the sum of net factor income, is always valued at factor cost. 35 National income and Product These, in outline, are the principal modifications to our conceptual scheme made necessary by the introduction of public-sector activity.

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