Worth: Mankiw Economics 5e CHAPTER THREE National Income: Where t comes From and where丨 t Goes A large income is the best recipe for happiness I ever heard of. Jane Austen The most important macroeconomic variable is gross domestic product(GDP) As we have seen, GDP measures both a nations total output of goods and ser- vices and its total income. To appreciate the significance of GDP, one need only take a quick look at international data: compared with their poorer counterparts, nations with a high level of gDP per person have everything from better child- hood nutrition to more televisions per household. A large GDP does not ensure that all of a nations citizens are happy, but it may be the best recipe for happiness hat macroeconomists have to offer This chapter addresses four groups of questions about the sources and uses of a nation s gdp. How much do the firms in the economy produce? What determines a na- tion,'s total income? Who gets the income from production? How much goes to compensate workers, and how much goes to compensate owners of capital? for investment, and how much does the government buy for pubic o a Who buys the output of the economy? How much do households pr hase for consumption, how much do households and firms purchas What equilibrates the demand for and supply of goods and services? What ensures that desired spending on consumption, investment, and gover ment purchases equals the level of production? To answer these questions, we must examine how the various parts of the econ- omy interact. a good place to start is the circular flow diagram. In Chapter 2 we traced the circular flow of dollars in a hypothetical economy that produced one product, bread, from labor services. Figure 3-1 more accurately reflects how real economies function. It shows the linkages among the economic actors--households, firms, User JOENA: Job EFF01419: 6264_ch03: Pg 42: 24837 #/eps at 1009 I ed,Feb13,20028:554MUser JOEWA:Job EFF01419:6264_ch03:Pg 42:24837#/eps at 100% *24837* Wed, Feb 13, 2002 8:55 AM The most important macroeconomic variable is gross domestic product (GDP). As we have seen, GDP measures both a nation’s total output of goods and ser￾vices and its total income.To appreciate the significance of GDP, one need only take a quick look at international data: compared with their poorer counterparts, nations with a high level of GDP per person have everything from better child￾hood nutrition to more televisions per household.A large GDP does not ensure that all of a nation’s citizens are happy, but it may be the best recipe for happiness that macroeconomists have to offer. This chapter addresses four groups of questions about the sources and uses of a nation’s GDP: ➤ How much do the firms in the economy produce? What determines a na￾tion’s total income? ➤ Who gets the income from production? How much goes to compensate workers, and how much goes to compensate owners of capital? ➤ Who buys the output of the economy? How much do households pur￾chase for consumption, how much do households and firms purchase for investment, and how much does the government buy for public purposes? ➤ What equilibrates the demand for and supply of goods and services? What ensures that desired spending on consumption, investment, and govern￾ment purchases equals the level of production? To answer these questions, we must examine how the various parts of the econ￾omy interact. A good place to start is the circular flow diagram. In Chapter 2 we traced the circular flow of dollars in a hypothetical economy that produced one product, bread,from labor services.Figure 3-1 more accurately reflects how real economies function. It shows the linkages among the economic actors—households, firms, National Income: Where It Comes From and Where It Goes 3CHAPTER A large income is the best recipe for happiness I ever heard of. — Jane Austen THREE 42 |