Topic 1 Flashcards by Toby Hill

3 approaches to economy’s output

Product
Income
Expenditure

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What are the national income accounts

Accounting framework to measure current economic activity

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GDP define

The total value of all final goods and services which are produced for the market place during a given time period and within the nations boarders

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Intermediate good and example

Goods used up in the process of producing something else
EG - flour used to make bread

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Final good

A product sold to its final user. End products of a process

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What is product approach

Measure economic activity by adding up the market values of goods and services produced, excluding any goods or services used in intermediate stage of production

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What is value added

The market value of output minus the value of inputs purchased from other producers

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Income approach

Add all forms of income then minus expenses Like wages rent and interest

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Aggregate income =

Total wages + total profit + (taxes)

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Consumption =

Spending by households on final goods and services

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Government purchases -

goods and services bought by government

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Net exports

Goods and services bought by residents of foreign countries

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Planned business fixed investment

Purchases of capital goods by businesses

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Residential investment

Purchases of new homes by households

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What does consumption expense include

Imports
Rent
Also how much each house could be rented for if they weren’t owned

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What does consumption expense not include

Homes, land, used goods,and financial assets

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What is inventory investment

The amount in which inventories increase in a year

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Can private investment be for imports too

Yes

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What does investment =

Unplanned investment plus planned investment

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Capital good

Long lasting tool used in production

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Capital stock

Total value of all capital goods in economy

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Private investment is the rate of change…

Of the stock of capital

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Capital formation

Increase in nations capital stock during a given time period

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What does private investment not include

Government investment
Consumer durable like furniture home phones
Human capital

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What does private investment ignore

Depriciation

Net private investment=

Gross private investment - depreciation

Two government puchsases components

Government investment Government consumption

Government investment

Capital goods purchased by the governement

Government consumption

Spending on goods and services used up in time period like salaries or materials

Government expenditure

Purchases of goods and services plus money disbursed by gov for transfer payments

What is transfer payment

Any payment that is not a compensation for goods services or resources

Net exports =

Exports - imports

GDP = for expenditure approach

C + I + G + X - IM C = household purchases I = business purchases G = government purchases X= exports IM= imports

What are unsold goods

Unplanned investment

What do all approaches have in common

Production = income = expenditure approach

Stock variable

Variable representing a quantity at a moment in time

FLow variable

A variable representing a process that takes place over a period

Examples of stocks

Wealth capital

Examples of flows

GDP, income, expenditure, saving, investment

Rate of change of a stock is a ….

Flow

GNP=

Total value of goods and services produced for the market place by domestic factors of production during a given time period

Domestic factors of production

Capital and labour owned by domestic nationals

NFP= ( net factor payments form abroad)

Income paid to domestic factors of production by the rest of the world minus the income paid to foreign factors by home economy

GNP= equation

GDP+NFP

Net national product (NNP)

Gross national prioduct minus depreciation of capital

NNP= equation

GNP- depreciation

Private disposable income

Income the pro at sector has available to spend

Private disposable income equation =

Y+NFP+TR+INT-T Y= GDP TR+ transfer payments received from gov INT = intrest payments on gov debt T = taxes

Net government income

Part of gdp that is not at disposal of private sector

Net government income =

T - TR -INT

Wealth

Value of everything an individual owns minus liabilities

National wealth

Total weal;th of an economy

Saving

Abstenation from current consumption

Saving =

Y + NFP - C - G

Saving = in closed economy

S= Y - C - G

What’s saving rat e

Aggregate saving / GDP

Private saving =

Private disposable income - consumption

Government saving =

Government disposable income - government consumption

Sum of private and government saving =

S= Y + NFP - C - G

Current account balance

Payments received from abroad for currently produced goods and services minus the payments made to foreigners by domestic economy

What is net income payments equal to

NFP

Net unilateral transfers

Payments form one country to another that don’t correspond to purchase of good or service or asset

Example of net unilateral transfer

Foreign aid

Current account =

Net exports + NFP

Saving private =

Private investment - gov saving + current account

Current account positive =

Incoming payments greater than outgoing

What does national wealth consist of

Domestic physical assets Net foreign assets

What can national wealth change as a result of

Changes in values of foreign assets or liabilities National saving

What’s national savings 2 uses

Increase stock of domestic physical capital through investment To increase stock of net foreign assets

What is the buyer of a bond Borrower or lender

Lender

What is the seller of a foreign bond Borrower or lender

Borrower