Economic Theory. An economic theory is a set of ideas about the economy that has been organized in a logical framework. Most economic theories are developed in terms of an economic model.
= total income
= total expenditure;
Y = C + I + G + NX.
total production=total income=total expenditure
GNP = GDP + NFP
GDP = GNP - NFP
GDP = GNP – NFP
PDI = Y + NFP + TR + INT - T
Y = gross domestic product (GDP);
NFP = net factor payments from abroad;
TR = transfers received from the government;
INT = interest payments on the government's debt;
T = taxes.
NGI = T – TR -INT
Spvt = (Y+NFP+TR+INT-T)-C
Sgov = (T - TR - INT) - G.
1, Spvt is used to fund new capital (Investment)
2, Provide the resource to Govt needs to finance its budget deficit (-Sgov)
2, Foreign lending
1, Domestic physical assets (Stock of capital, goods, Land)
2,Net foreign assets= Countries foreign assets(foreign stock, bonds and factories own by domestic resident) minus its foreign liabilities (domestic physical and financial assets own by foreigners)
Note: Domestic financial assets held by domestic residents are not part of National wealth.
1, Value of existing assets or liabilities that make up national wealth
* Stock Prices
2, National Saving
Pn= new price, Qn= new Quantity
1, GDP deflator measure prices of all goods & services produced where as CPI measure the prices of only goods & services bought by consumer.
2, GDP deflator shows the prices of all goods & services produced domestically, imported goods are not included in GDP deflator. CPI consider imported goods.
3, CPI is computed using fixed basket of goods. GDP deflator allows the basket of goods to change overtime as the composition of GDP deflator.
Real Interest Rate = Nominal Interest Rate - Inflation (Actual)
Expected Real Interest Rate = Nominal Interest Rate - Inflation (Expected)