Applied Economics | | GDP and GNP

Macroeconomics

is a branch of economics dealing with the performance, structure, behavior, and decision-making of an economy as a whole

The Circular-Flow Model

a simple depiction of the macroeconomy

The Circular-Flow Model

a visual model of the economy that shows how pesos/dollars flow through markets among household and firms.

Factors of production

are inputs like labor, land, and capital

Factor payments

are payments to the factors of production (e.g., wages, rent, profit)

The government

collects taxes, buys g&s, transfer money (pump priming)

The financial system

matches savers’ supply of funds with borrowers’ demand for loans.

The foreign sector

trades g&s, financial assets, and currencies with the country’s residents (employment).

Economic Indicator

is a piece of economic data, usually of macroeconomic scale, that is used by analysts to interpret current or future investment possibilities.

National Income Accounting

a statistical framework of the economy’s production, expenditures and income, and records the annual flow of goods and services in the economy during a given period of time.

Gross Domestic Product (GDP)

total produced within the country.

Gross National Product (GNP)

total produced of nation’s citizen

National Income (NI)

GDP + Foreign Production by National Residents – Domestic Production by Non-National Residents.

Personal Income (PI)

amount of money received by an individual (wages, bonuses, profit, rent and dividends)

Personal Disposable Income(DI)

the amount of money that an individual or household has to spend or save after income taxes have been deducted.

Consumption (C)

is total spending by households on g&s

Goods

include household spending on durable goods such as automobiles and appliances, and nondurable goods, such as food and clothing

Services

include such intangible items as haircuts and medical care

Investment (I)

is total spending on goods that will be used in the future to produce more goods

Government Purchases (G)

are those purchases of goods for social services on education, health, defense, transportation, roads and bridges

Transfer Payments

G excludes __________, such as retirement benefits or health insurance. They are not purchases of g&s.

Net Exports (NX)

= exports - imports

Net Exports (NX)

Also known as “Net Foreign Investment”

Exports

represent foreign spending on the economy’s g&s.

Imports

are the portions of C, I, and G that are spent on g&s produced abroad

C + I + G + NX (X-M)

The formula for GDP

GDP per capita

measures how much output or income was produced or received on the average by an individual in an economy

GDP/Population

Formular for GDP per capita

Nominal GDP

(GDP at current prices) values output using current prices. It is not corrected for inflation

Real GDP

(GDP at constant prices) values output using the prices of a base year. Real GDP is corrected for inflation.

GDP deflator

measure of the overall level of prices (inflation)

GDP deflator

measures the current level of prices relative to the prices in the base year

100 * nominal GDP/real GDP

Formula for GDP Deflator

GDP deflator current year - GDP deflator last year / GDP deflator last year * 100

Formula for Inflation rate