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W01 National Income Accounting (GDP (Gov Sector (Transfer payments:…
W01
National Income Accounting
GDP
Elements
Definition
Final product: currently produced goods & services sold through the market during current time period
Not included
Transfer payments: no goods/ services in return
Intermediate good: resold
Value added: Output - intermediate goods
=> total value added = final product
GNP (Gross national product)
= GDP + factor payments received from rest of the world - Factor payments sent to rest of the world
Gross = include depreciation
Net = exclude depreciation
=> NDP = GDP - appreciation
Expenditure
Investment types
Private investment
(private capital formation) final goods business firms keep for themselves
=> add to nation's stock of income-yielding assets
Inventory investment
changes in stock of raw materials, parts & finished goods held by business
Fixed investment
all final goods purchased by business that are not intended for resale
Personal saving
Investments: additions to the physical stock of capital
Net Exports & Net Foreign Investment
Gov Sector
Transfer payments:
payments from the gov to the recipient without any obligation for the recipient to provide any services in return
Budget Deficit
T < G
Budget Surplus
T > G
Gov expenditure = purchases + transfers
GNE
= C + I + G
Gross National Expenditure
YD = Y + TR - TA
YD: disposable income
TR: transfers
TA: net of taxes
Budget deficit: G + TR - TA
S - I = BD + NX
=> S = I => BD = external deficit
(twin deficits)
Equation
Leakages
(S + T): portion of total income that flows to taxes/savings rather to purchases
Y = C + S + T
Y: total income
C: consumption
S: private saving
T: R - F = taxes - transfers = net tax revenue
Injections
(I + G + NX) nonconsumption expenditures
Y = f (N, K)
N: labour
K: capital
=> factors of production
Y = (w x N) + (i x K) + profit
=> payments to factors
Nominal GDP
not take account of price changes
Real GDP
adjusts value to take account of price changes
Inflation
Rate
Measures
Consumer Price Index (CPI)
a typical urban consumer's cost of purchases
based on a fixed basket of goods & services
include import prices
GDP deflator = Nominal GDP / Real GDP
Real IR = nom. IR - (expected) Inflation Rate