Macroeconomic Accounts (Lecture 1a)

Vocabulary flashcards covering macroeconomic accounts, GDP components, definitions, measurement methodologies, and price indices from Lecture 1a.

Gross Domestic Product (GDP)

A market-based flow measure of aggregate output within a nation's borders, calculated as the sum of value added plus taxes less subsidies, total final expenditure, or total income generated.

Flow Variable

An economic variable measured over an interval of time, such as income, government budget deficits, or GDP.

Stock Variable

An economic quantity measured at a specific point in time, such as accumulated wealth, national debt, or physical inventory.

Value Added (VA)

The monetary value of an industry or firm's output after deducting the cost of intermediate inputs (such as raw materials and energy), preventing double counting in GDP.

Gross National Income (GNI)

A measure of the total economic activity and earnings of a nation's resident economic units regardless of geographic location, calculated by adding residents' overseas earnings to GDP and subtracting non-residents' domestic earnings.

Balance on Primary International Income

The net difference between Gross Domestic Product (GDP) and Gross National Income (GNI), representing the net flow of primary income earned abroad by residents versus income paid to non-residents.

Remittances

Transfers of money sent by residents working abroad back to their home economy; in 2020, Tonga received remittances equivalent to 39% of its GDP, creating a substantial wedge between domestic production and national income.

Home Production

Unpaid productive work done by households for themselves (such as cooking, cleaning, and childcare), which was estimated at £1.2 trillion in the UK in 2016 (over 50% of GDP) but is excluded from official GDP calculations.

Consumption ($C$)

Household expenditure on final goods (both durable goods like cars and furniture, and non-durable goods like food and heating) and services, accounting for approximately 72% ($18\text{ tn}$) of US GDP in 2023Q3.

Investment ($I$)

Total expenditure comprising business fixed investment in capital goods (factories and machinery), residential fixed investment (housing), and changes in business inventories, accounting for 20% ($5.5\text{ tn}$) of US GDP in 2023Q3.

Government Expenditure ($G$)

Direct spending by government on currently produced goods and services and public sector employee wages (accounting for 14% or $3.5\text{ tn}$ of US GDP in 2023Q3), strictly excluding transfer payments.

Transfer Payments

Government payments (such as social security and welfare benefits) that redistribute income without exchanging for currently produced goods or services, and are therefore excluded from GDP.

Net Exports ($NX$)

The net expenditure from abroad on domestically produced goods and services, calculated as total exports ($X$) minus total imports ($Z$).

Used Goods (National Accounting Treatment)

Previously produced goods whose sale represents a transfer of asset ownership rather than new production, meaning the sale price is excluded from GDP while broker or salesperson commissions are counted.

Inventories (National Accounting Treatment)

Output held by firms; when stored, output value enters GDP as inventory investment; if it spoils, GDP remains unchanged; when subsequently sold, it is treated as a used good to prevent double counting.

Intermediate Goods

Inputs consumed in the process of manufacturing finished products, which are not explicitly counted in GDP because their value is already fully incorporated in the final product's market price.

Imputed Rent

An estimated market value assigned to the flow of housing services enjoyed by owner-occupiers who do not pay explicit rent, accounting for approximately 10% of UK GDP by expenditure.

Shadow Economy

Unregulated, unrecorded, and untaxed economic activity (comprising legal production and illegal activities like prostitution and drug trade) that is omitted from ordinary administrative records.

Nominal GDP

The total monetary value of final goods and services produced in an economy evaluated at current market prices: $\text{Nominal GDP}_t = \sum_{i=1}^n P_{i,t} Q_{i,t}$.

Real GDP

The value of final goods and services produced evaluated at fixed base-year prices: $\text{Real GDP}_t = \sum_{i=1}^n P_{i,0} Q_{i,t}$, measuring physical volume by eliminating the effects of price inflation.

Chain-Weighting

A method of computing real GDP where component growth rates are updated annually using moving expenditure shares, eliminating the price distortions inherent in using a single fixed base year.

Consumer Price Index (CPI)

A price index tracking the average change over time in the prices paid by consumers for a fixed basket of approximately 700 representative goods and services relative to a base period.

Consumer Price Index Including Owner Occupiers' Housing Costs (CPIH)

The UK Office for National Statistics' lead measure of consumer price inflation since March 2017, extending standard CPI to include costs associated with owning and maintaining a home along with council tax.

GDP Deflator

A broad measure of the price level of all final goods and services produced domestically, defined as the ratio of Nominal GDP to Real GDP: $\frac{\text{Nominal GDP}}{\text{Real GDP}}$.

Inflation Rate ($\pi$)

The percentage change in a chosen price level index between two periods: $\pi_{t+1} = \left(\frac{P_{t+1} - P_t}{P_t}\right) \times 100$.