Download National Income Accounting

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
Imports
362
+Transfer payments
283
-Corporate Income Taxes 88
Indirect business taxes
231
Exports
465
-Undistributed corp. profits
46
-Social Security contrib.
169
Personal consumption
2,316
Gross private domes invest.
503
Government purchases
673
Depreciation [Capital consumption] 307
I’m going through an
N.F.F.I.E. in the U.S.
12
academic recession.
C = $ ______
2,316
Report Card
Ig = $ ______
English
C
503
Accounting
C
G = $ ______
673
American History
D
ROW
Economics
F
Xn = $ ______
+103
Gross Domestic Product (GDP) $______
3,595
$
-307
-Consumption of fixed capital
______
3,288
Net Domestic Product (NDP)
$_______
-12
______
-Net For. Factor Inc. Earn. U.S.
______
-231
-Indirect business taxes
3,045
$______
National Income (NI)
-46
______
-Undistributed Corporate Profits
______
-88 -303 NFFI = $12
-Corporate income taxes
______
-Social Security Contributions
-169
+283
+Transfer payments
_______
3,025
Personal Income (PI)
$_______
-403
________
-Personal Taxes
$_______
Disposable Income (DI)
2,622
100
$112
Positive Net Investment [Ig>D]
Gross Investment
- Depreciation
=Net Investment
Gross
Investment
Net
Investment
Depreciation
[increasing product. capac.]
Increased
Stock of
Capital
Consumption
and
Government
Spending
Stock of
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. More unemployment
1. Less unemployment
2. Decrease in Real GDP
2. Increase in real GDP
3. Reduced job growth
3. Rapid job growth
4. Lower interest rates
4. Increasing interest rate
5. Decreasing prices
5. Increasing prices
6. More social problems
6. Fewer social problems
(alcoholism, domestic violence, (alcoholism, domestic violence,
divorce and suicide)
divorce, and suicides)
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 __
5
One mil. are unemployed & 19 mil. are employed. The unemploy. rate is __%.
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
for jobs, then the employment rate would be ____%.
4.9
[6,739,000/136,297,000 x 100 = 4.9%]
Negative/Positive GDP Gaps
Inflationary GDP Gap
AS
AD2
AD3
Recessionary GDP Gap
AD1
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
Demand-Pull Inflation – increase in AD.
[“Too many dollars chasing too few goods”]
Originates from “buyers side of the market”
D1 D2 S
P2
P1
“Demand-pull”
D S2
PL2
PL1
S1
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.
“Wage-price”
3. Supply-side cost shocks – unanticipated
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)
11%
124.0 x 100 = ____
300 x 100 = ____
-3.3%
5.4% 120 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%
Nominal
Income
6
%
Inflation
Premium
=
10
%
Real
Income
Misery Index