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National Income Accounting

National Income Accounting. [GDP and its four cousins]. C + Ig + G + Xn [X-M] = GDP – Depreciation = [what is for sale] NDP – NFFIEUS –I ndirect B usiness Taxes = NI – U ndis C orp P rofits – C orp I nc T axes - S oc S ecur + T P =

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National Income Accounting

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  1. National Income Accounting [GDP and its four cousins] C + Ig + G + Xn [X-M]= GDP–Depreciation= [what is for sale] NDP–NFFIEUS–Indirect Business Taxes = NI–UndisCorpProfits–CorpInc Taxes-SocSecur+TP= [PIis what you canspend, save, or pay in taxes] PI – Personal Income Taxes = [DIis what you canspendorsave ] [“Replacement capital”]

  2. Answers to “Is It Counted in GDP?”

  3. NIA Practice – “How To Do It” Personal taxes 403 -Undistributedcorp. profits46 Imports 362-Social Security contrib. 169 +Transfer payments 283Personal consumption 2,316 -Corporate IncomeTaxes 88Gross privatedomes invest. 503 Indirect business taxes 231 Government purchases 673 Exports 465Depreciation [Capital consumption] 307 N.F.F.I.E. in the U.S. 12 I’m going through an academic recession. C = $ Ig = $ G = $ Xn = $ Gross Domestic Product (GDP) -Consumption of fixed capital Net Domestic Product (NDP) -Net For. Factor Inc. Earn. U.S. -Indirect business taxes National Income (NI) -UndistributedCorporate Profits -Corporateincome taxes -Social Security Contributions +Transferpayments Personal Income(PI) -Personal Taxes Disposable Income(DI) 2,316 ______ ______ ______ ______ $______ ______ $_______ ______ ______ $______ ______ ______ ______ _______ $_______ ________ $_______ Report Card English C Accounting C American History D Economics F 503 673 ROW $100 +103 3,595 -307 3,288 -12 -231 $112 3,045 -46 -303 -88 NFFI = $12 -169 +283 3,025 -403 2,622

  4. Positive Net Investment[Ig>D] Gross Investment - Depreciation = Net Investment Net Investment Gross Investment Depreciation Increased [increasing product. capac.] Consumption and Government Spending Stock of Capital Stock of Capital December 31 Year’s GDP January 1

  5. Nominal[money]GDPv.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) GDPv.current (money) GDP

  6. 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. 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). [$6,947/126.1 x 100 = $5,509 trillion [$7,636 trillion/110.2 x 100 = $6,929 trillion]

  7. Four Phases of Business Cycle Characteristics ofExpansionsandRecessions Expansions 1. Less unemployment 2. Increase in real GDP 3. Rapid job growth 4. Increasing interest rate 5. Increasing prices 6. Fewer social problems (alcoholism, domestic violence, divorce, and suicides) Recessions 1. More unemployment 2. Decrease in Real GDP 3. Reduced job growth 4. Lower interest rates 5. Decreasing prices 6. More social problems (alcoholism, domestic violence, divorce and suicide)

  8. 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. “No Job”

  9. 2.Structural Unemployment Structural–“technological”or“long term”. There are basic changes in the“structure”of the labor force which make certain“skills obsolete”. Automationmay result in job losses. Consumer tastemay make a good “obsolete”. Theautoreduced the need for carriage makers. Farm machineryreduced 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.

  10. 3. Cyclical Unemployment Cyclical–“economic downturns”in thebusiness cycle. “Cyclical fluctuations”caused by“deficient AD” “Durable goods jobs”are impacted the most. Thesecan be postponedbecausetheycan be repaired. “Cyclical unemployment”is“real unemployment”. “These jobs do come back.”

  11. Unemployment Rate = Unemployment/Labor Force X 100 Unemployment5,655,000 Unemployment Rate = Labor Force x 100; 4.0% = 140,863,000 x 100 [Employed + unemployed] [135,208,000+5,655,000] In Forney, 42 are unemployed & 658 are employed. The unemployment rate is __%. One mil. are unemployed & 19 mil. are employed. The unemploy. rate is __%. 6 5 NS 41 41. If the total population is 280 million, and the civilian labor force includes129,558,000with 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%]

  12. Negative/PositiveGDP Gaps Inflationary GDP Gap AS AD2 AD1 AD3 Recessionary GDP Gap 11% 6%1% YR Y*FYi YA YP YA $9 T $10 T $11 T “Natural Rate of Unemployment” [4-6%]

  13. Demand-Pull&Cost-PushInflation 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 S1 PL2 PL1 Cost-Push Inflation– 3 things may cause “cost-push” inflation. 1.Wage-push– strong labor unions 2.Profit-push– companies increase prices when their costs increase. 3.Supply-side cost shocks– unanticipated increase in raw materials such as oil. “Cost-push” “Wage-price” Spiral

  14. Figuring Inflation[Change/Original X 100 = inflation] (2000-later year) (1999-earlier year) Current year’s index – last year’s index172.2-166.6(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 = ____120 x 100 = ____300 x 100 = ____ 5.4% -3.3% 11% 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)% 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)%. 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)%. [5.6/166.6 x 100 = 3.4%] [-11/160 x 100 = -6.9%]

  15. 6% 16% 10% Real Income [Nominal income –inflation rate=Real Income] - = Inflation Premium Nominal Income Real Income

  16. Misery Index

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