Macro Economics unit 5-6

National Income Accounting

It measures the output pf the entire economy as well as the flow of the money and output between households, businesses, gov, and international sector.

Three things national income accounting does

Evaluates the economic condition of the economy

Can compare national accounts over years (measures growth)

Provide a measure to compare nations

Gross Domestic Product (GDP)

is the market value of all final G/S produce in a year at the market price within a nations borders.

Final goods/services

are G/S being purchased for final use by consumers

ex: books, tvs, shirts ect…

Intermediate goods/services

are G/S used in the production of final G/S

ex: fabric for a shirt

Value-Added

Market value of the Final G/S ignoring transactions involving intermediate goods to avoid double accounting.

Inventory

G/S that remain unsold / unused

Two major types of non-production transactions not included in GDP

1.) Purely financial transactions

1A.) Publlic transfer payments - a receipt, did not produce new or exchange G/S

1B.) Private transfer payments - moves money from one person to another

1C.) Security Transactions - ownership changes of the production of G/S

2.) Second Sales

Why do new issued stocks and bonds indirectly effect GDP calculations?

money is taken from savers to businesses, which become capital goods. Capital good are intermediate goods that contribute to output.

Why do old stocks and bonds not indirectly effect GDP calculations?

The money spent does not create current production

Calculate GDP through the expenditure approach (formula)

Consumption (C) + Investment (I) + Government (G) + Net Exports (Nx) = GDP

Personal Consumption Expenditures (C)

Expenditures by households (minus new housing) on final G/S.

Gross Investment

Net investment + CCA (depreciation)

Net Investment

Gross - CCA (depreciation)

Government Purchases

All gov spending on final G/S

Net Exports

Exports - imports

Nominal Gross Domestic Product

a measure of national output based on current (year) prices of G/S

Real Gross Domestic Product

GDP data that has been adjusted for changes in price

GDP Deflator

GDP Deflator = Nominal GDP / Real GDP * 100

Consumer Price Index

measures the impact of price changes make on the cost of the typical bundle of G/S purchased by a household.