National Income Accounting by X7WD8Y04

VIEWS: 7 PAGES: 16

									         National Income Accounting
        [GDP and its four cousins]



C   +Ig + G + Xn [X-M] =
    [“Replacement capital”]
GDP–Depreciation=           [what is for sale]

NDP –NFFIEUS–Indirect Business Taxes =
NI–Undis Corp Profits–Corp Inc Taxes -Soc Secur+TP=
     [PI is what you can spend, save, or pay in taxes]

PI – Personal Income Taxes =
    [DI is what you can spend         or save         ]
Answers to “Is It Counted in GDP?”
                   NIA Practice – “How To Do It”
Personal taxes          403           -Undistributed corp. profits        46
 Imports                362           -Social Security contrib.          169
+Transfer payments      283           Personal consumption            2,316
-Corporate Income Taxes 88            Gross private domes invest.        503
Indirect business taxes 231           Government purchases               673
 Exports                465           Depreciation [Capital consumption] 307
           I’m going through an
           academic recession.        N.F.F.I.E. in the U.S.              12
                                 C = $ ______
                                            2,316
        Report Card
     English          C          Ig = $ ______503
     Accounting       C
                                 G = $ ______ 673
     American History
     Economics
                      D
                      F          Xn = $ ______
                                            +103          ROW
 Gross Domestic Product (GDP) $______
  -Consumption of fixed capital
                                          3,595
                                            -307
                                         ______
                                                         $   100
 Net Domestic Product (NDP)              3,288
                                     $_______
  -Net For. Factor Inc. Earn. U.S.            -12
                                         ______
  -Indirect business taxes                  -231
                                         ______
 National Income (NI)                $______
                                           3,045           $112
  -Undistributed Corporate Profits      ______
                                             -46
                                        ______ -303
  -Corporate income taxes
  -Social Security Contributions
                                             -88
                                        ______
                                            -169       NFFI = $12
  +Transfer payments                       +283
                                       _______
 Personal Income (PI)               $_______
                                           3,025
  -Personal Taxes                           -403
                                      ________
 Disposable Income (DI)             $_______
                                           2,622
Positive Net Investment [Ig>D]
      Gross Investment
         - Depreciation
         =Net Investment
                      Net
          Gross    Investment
     Investment
                   Depreciation    [increasing product. capac.]

                                    Increased
                  Consumption
     Stock of         and           Stock of
                  Government
     Capital       Spending         Capital
    January 1     Year’s GDP      December 31
    Nominal    [money]   GDP v. Real GDP
An increase in prices and/or output will increase
nominal GDP.

Only an increase in output will increase real GDP.
Nominal GDP could increase even if output falls.

Real GDP = Nominal Y/GDP deflator x 100

So, nominal GDP measures output & prices.

Real measures only output [actual production]

Constant (real) GDP v. current (money) GDP
         Practice Macroeconomic Formulas

     Real GDP = Nominal GDP/Index X 100


                  NS 12 and 13
12. Using the above formula, what is the real GDP for 1994
if nominal GDP was $6,947 trillion and the GDP deflator was
126.1? ($6,611/$5,610/$5,509) billion.
 [$6,947/126.1 x 100 = $5,509 trillion
13. For 1996, what would real GDP be if nominal GDP were
$7,636 trillion and the GDP deflator were 110.2?
($6,929/$9,628/$6,928).


  [$7,636 trillion/110.2 x 100 = $6,929 trillion]
        Four Phases of Business Cycle




Characteristics of Expansions and Recessions
  Expansions                    Recessions
1. Less unemployment            1. More unemployment
2. Increase in real GDP         2. Decrease in Real GDP
3. Rapid job growth             3. Reduced job growth
4. Increasing interest rate     4. Lower interest rates
5. Increasing prices            5. Decreasing prices
6. Fewer social problems        6. More social problems
  (alcoholism, domestic violence, (alcoholism, domestic violence,
  divorce, and suicides)          divorce and suicide)
      Three Types of Unemployment
1.Frictional – “temporary”, “transitional”, “short-term.”
(“between jobs” or “search” unemployment)




 Examples:
 a. People who get “fired” or “quit”
    to look for a better one.
 b. “Graduates” from high school or
    college who are looking for a job.
 c. “Seasonal” or weather-dependent jobs such as
    “agricultural”, “construction”, “retail”, or “tourism”.
    [lifeguards, resort workers, Santas, & migrant workers.]
 Frictional unemployment signals that “new jobs” are available
 and reflects “freedom of choice”.
 These are qualified workers “transferable” skills.
   2. Structural Unemployment
Structural – “technological” or “long term”.
There are basic changes in the “structure” of the labor
force which make certain “skills obsolete”.

Automation may result in job losses.
Consumer taste may make a good “obsolete”.
The auto reduced the need for carriage makers.
Farm machinery reduced the need for farm laborers.
“Creative destruction” means as jobs are created,
other jobs are lost. Jobs of the future destroy jobs of
today. Frictional and Structural make up the “natural
rate of unemployment”.

“These jobs do not come back.”
“Non-transferable skills” – choice is
prolonged unemployment or retraining.
        3. Cyclical Unemployment
Cyclical – “economic downturns”   in the business cycle.
“Cyclical fluctuations” caused by “deficient AD”
“Durable goods jobs” are impacted the most.
These can be postponed because they can be repaired.
“Cyclical unemployment” is “real unemployment”.

    “These jobs do come back.”
                 Unemployment                 5,655,000
Unemployment Rate = Labor Force x 100; 4.0% = 140,863,000 x 100
                        [Employed + unemployed]       [135,208,000+5,655,000]

                                                                           6
In Forney, 42 are unemployed & 658 are employed. The unemployment rate is __%.
One mil. are unemployed & 19 mil. are employed. The unemploy. rate is __%.5




                                  NS 41
41. If the total population is 280 million, and the civilian labor force
includes 129,558,000 with jobs & 6,739,000 unemployed but looking
                                                 4.9
for jobs, then the employment rate would be ____%.


          [6,739,000/136,297,000 x 100 = 4.9%]
Negative/Positive GDP Gaps

         Inflationary GDP Gap
                                                     AS
                                               AD2
                                         AD1
                                   AD3


            Recessionary GDP Gap
                                     11% 6% 1%
                                     YR   Y*F Yi
                                     YA   YP YA
                                     $9 T $10 T $11 T

     “Natural Rate of Unemployment” [4-6%]
         Demand-Pull & Cost-Push Inflation
                                                         D1 D2 S
Demand-Pull Inflation – increase in AD.             P2
[“Too many dollars chasing too few goods”]
                                                    P1
Originates from “buyers side of the market”

                                                         “Demand-pull”




                                           D S2
                                    PL2           S1
                                    PL1
Cost-Push Inflation – 3 things may
cause “cost-push” inflation.              “Cost-push”
1. Wage-push – strong labor unions
2. Profit-push – companies increase prices
   when their costs increase.
3. Supply-side cost shocks – unanticipated “Wage-price”
                                              Spiral
   increase in raw materials such as oil.
                      Figuring Inflation
          [Change/Original X 100 = inflation]

        (2000-later year)    (1999-earlier year)
        Current year’s index – last year’s index     172.2-166.6(5.6)
C.P.I. = Last year’s index(1999-earlier year) x 100; 166.6   x100 = 3.4%

 130.7-124.0(6.7)     116-120(-4)         333-300(33)
   124.0 x 100 = ____
                  5.4% 120 x 100 = ____
                                    -3.3%                11%
                                            300 x 100 = ____

                    NS 50, 51, & 52
50.The CPI was 166.6 in 1999 and 172.2 in 2000.
   Therefore, the rate of inflation for 2000 was
   (2.7/3.4/4.2)% [5.6/166.6 x 100 = 3.4%]
51. If the CPI falls from 160 to 149 in a particular
  year, the economy has experinced (inflation/deflation)
     of (5/-4.9/-6.9)%. [-11/160 x 100 = -6.9%]
52. If CPI rises from 160.5 to 163.0 in a particular year,
   the rate of inflation for that year is (1.6/2.0/4.0)%.
[Nominal income – inflation rate = Real Income]




       16%
                                          10
                  -      6         =       %
                         %
        Nominal        Inflation           Real
        Income         Premium           Income
Misery Index

								
To top