Chapter Two National Income Accounting

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Chapter Two National Income Accounting

• Gross Domestic Product and Gross National Product
  
  1. Calculating GDP
  Final goods and value added
  current output
  market prices
  
• 2. GDP and GNP
• Real and Nominal GDP (see table 2-3)

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• Price Indexes
  1. The GDP deflator ---is the ratio
  of nominal GDP in a given year to real GDP of
  that year
  2. The Consumer Price
  Index (CPI)---measures the cost of buying a fixed
  basket of goods and services representative of
  the purchases of urban consumers.
  3. The Producer Price Index (PPI)----raw
  materials and semi-finished goods.

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• From GDP to Personal Disposable Income
  1. GDP - Capital consumption allowance
  
  2. NDP - Indirect taxes
  3. NI -
  corporate profits -social insurance contributions
  government and business transfers to persons
  interest and dividends 4. PI - personal
  tax and non-tax payments
  5. PDI
  consumption saving

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• Outlays and Components of GDP( Fig2-1)
  
  1. Demand components (from the view of
  expenditures)
  A. Consumption
  B. Investment
  C.
  Government
  D. Net exports
  Total Demand for GDP(or Y) CIGNX

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• 2. Payments to factors of production (from the
  view of income)
  A. Labor B. Capital
  C. Profit About 3/4 of
  factors payments are payments to labor. Most of
  the remainder goes to pay capital. In
  oil-extraction economies, natural resources are a
  dominant factor of production.
  PDI GDP net
  factor income from abroad - depreciation -
  retained earnings transfers - taxes

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• The Circulation of the Macroeconomic System
• 1. Simple Economy

Payoffs
Factors
Household
Firm
Goods Services
Expenditure
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• 2. Simple Economy plus Government

G purchases
TR
Government
Public Goods
Taxes
Taxes
Payoffs
Factors
Household
Firm
Goods Services
Expenditure
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• 2. Four Sectors of Economy

G purchases
TR
Public Goods
Government
Taxes
Taxes
Payoffs
Factors
Household
Firm
Money outflow
Export
Goods Services
Import
Foreign Firm
Foreign HH
Expenditure
Money inflow
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• Some Important Identities
  1. A Simple Economy (no government and
  foreign trade )
  Demand for ( GDP) Y CI
  Income from ( GDP) Y CS ?
  CI Y CS
  and I Y - C S
  that is I S

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• 2. Reintroducing the government and foreign trade
  
  Demand Y C I G NX
  Income Y YD
  TA - TR ? C S YD
  
  ? C S YD Y TR - TA
  ? S - I (G TR - TA) NX
  
• 3. Saving , Investment , Government Budget , and
  Trade