Measuring a Nation’s Wealth: The National Accounts CHAPTER 1

These vocabulary flashcards cover the fundamental concepts of national accounting, GDP computation methods, income types, and international wealth comparison indicators based on the lecture notes.

Simon Kuznets

The economist who developed the GDP indicator in the 1930s in the US, later refined by Keynes, to quantify the impact of the Great Depression.

Output Approach

A method of computing GDP by adding up the value of all the final goods and services produced within a country over a given period of time.

Expenditure Approach

A method of computing GDP by adding up all the expenditures pertaining to the goods and services produced in the economy, expressed as $Y = C + I + G + X - M$.

Income Approach

A method of computing GDP by adding up the primary incomes created by the production of goods and services in the economy.

Double Counting

The accounting error of including the value of intermediate goods at each transaction stage, which is avoided by only counting the added value or final goods.

Intermediate Good

A good used as an input in the production process of another tradable good or service.

Final Good

A good that has reached its final destination, whether bought by households for consumption, by firms as capital goods, exported, or held in inventory at the end of a period.

Output’s Added Value

The revenue generated by the sale of an output minus the value of intermediate goods and services used in the production process.

Firms' Gross Value Added ($VAB$)

The sum of all domestic firms' gross added values, calculated as $VAB = \sum_{i=1}^{m} VA_{it}$ where $VA_{it} = P_{it}Q_{it} - IC_{it}$.

Non-market Output

Services produced by public authorities or non-profits that are not traded on markets; their value is proxied by wages paid to workers minus intermediate costs.

GDP at Factor Cost

A measure of GDP that excludes indirect taxes and subsidies.

GDP at Purchaser Prices

GDP measured as GDP at factor cost plus indirect taxes minus subsidies.

Primary Income

An income generated by the creation and distribution of value added, distributed to production factors (labor and capital) and public administrations via taxes.

Gross Operating Surplus ($GOS$)

A component of capital primary income including interests, dividends, rent for fixed assets, and undistributed profits (gross savings).

Gross Domestic Income ($GDI$)

The sum of primary incomes generated and distributed on a territory over a period, calculated as $GDI = Y_{lab} + Y_{gop} + T_{ind}$.

Gross National Income ($GNI$)

The primary income perceived by the fiscal residents of a considered economy, regardless of where the activity occurred.

Net Income from Abroad ($NIA$)

The difference between $GNI$ and $GDI$, representing incomes generated outside but perceived by residents minus incomes generated domestically but perceived by foreign residents.

Net Domestic Income ($NDI$)

The value obtained by subtracting the depreciation of the total stock of fixed capital from the Gross Domestic Income ($NDI = GDI - \text{depreciation}$).

Disposable Income

An agent's total personal income once personal taxes (transfers paid) have been subtracted and benefits (transfers received) have been added to the primary income.

Investment ($I$)

In the expenditure approach, this includes fixed capital formation (equipment, infrastructure, new houses) and inventory formation.

Nominal Variable

A variable expressed in current monetary units, using prices observed at the moment the variable is measured.

Real GDP

The value of final goods and services produced in an economy measured in the monetary units of a reference year to neutralize the effect of price changes.

GDP Measured at Chained Prices

A method of computing real GDP where the reference period is the previous year ($t - 1$), allowing the weights of different components to be re-estimated annually.

GDP Deflator

A price index of the final output calculated as $\frac{\text{nominal GDP}_t}{\text{real GDP}_t}$, used to measure inflation.

Growth Factor

The ratio between the value of a variable at time $t+1$ and its value at time $t$, expressed as $\frac{x_{t+1}}{x_t}$.

Purchasing Power Parity ($PPP$)

A conversion rate between two currencies based on a comparison of their domestic purchasing powers, often used for international wealth comparisons.

Big Mac Index

A simplified PPP index introduced by The Economist that compares the price of a Big Mac across countries to assess currency valuation.

Human Development Index ($HDI$)

A synthetic indicator developed by the UN to measure welfare based on life expectancy at birth, education level, and purchasing power (GDP per capita).