BUREAU OF ECONOMIC ANALYSIS WEB SITE

FOUR SECTORS OF THE ECONOMY:

1. HOUSEHOLD SECTOR

2. FIRM SECTOR

3. GOVERNMENT SECTOR

4. FOREIGN SECTOR

FIGURE L7-3

IDENTITY SIGN:

If two things are identical, that means they are always = .

IN A CLOSED ECONOMY HAVE:

FIGURE L7-4

Aggregate Spending C + I + G

 

Since Aggregate Spending is defined in such a way that:

Aggregate Spending Y

We have

Y C + I + G

This is an ACCOUNTING IDENTITY that always holds, regardless of the level of Y.

 

 

 

 

 

IN AN OPEN ECONOMY HAVE:

FIGURE L7-5

X = EXPORTS

IM = IMPORTS

X - IM = NET EXPORTS

Aggregate Spending C + I + G + (X - IM)

Since

Aggregate Spending Y

We also have

Y C + I + G + (X - IM)

THIS IS ALSO AN ACCOUNTING IDENTITY THAT ALWAYS HOLDS, REGARDLESS OF THE LEVEL OF Y.

Sample Data for Expenditures Side (Go to Table 1.1.5)

THE INCOME SIDE:

FIGURE L7-6

 

 

 

 

 

 

 

GDP FROM THE INCOME SIDE

GDP

+ Net earnings of domestic resources abroad

= Income receipts from the rest of the world.

- Income payments to the rest of the world.

_______________________

GNP : Gross National Product

DEFINITION:

GROSS NATIONAL PRODUCT is the total gross income earned by a nation's permanent residents.

GNP : Gross National Product

- Depreciation (Consumption of Fixed Capital)
_______________________

NNP: Net National Product

- Statistical Discrepancy
_______________________

NI: National Income

DEFINITION:

NATIONAL INCOME is the total income earned by the residents of a country in the production of goods and services, regardless of where it is earned.

FROM NATIONAL INCOME TO DISPOSABLE INCOME:

NI: National Income

- Indirect Business Taxes

- Taxes on Corporate Income

- Undistributed Corporate Profits (Retained Earnings)

- Social Security Taxes

+ Transfer Payments

+ Interest on Government Debt
_______________________

Personal Income

- Personal Taxes
_______________________

DI: Disposable Personal Income (Disposable Income)

This can either:

1. Be spent, in which case it is C, Consumption,

or

2. Be not spent, in which case it is personal saving.

(Go to Table 1.7.5)

REAL GDP IN Table 7-1

Using year 1 prices.

		YEAR 1	YEAR 2
APPLES	QUANTITY	2000	2200
	YEAR 1 PRICES	$0.25	$0.25
	TOTAL	$500	$550
ORANGES	QUANTITY	1000	1200
	YEAR 1 PRICES	$0.50	$0.50
	TOTAL	$500	$600
REAL GDP		$1,000	$1150

TABLE L7-1

 

Sample Data for Real GDP

(Go to Table 1.1.6)

Bureau of Labor Statistics

Sample Data for Implicit Price Deflators (Go to Table 1.1.9)

The PERSONAL CONSUMPTION EXPENDITURES PRICE INDEX (PCEPI)

Define:

P = PI/100

That is, to get P we get rid of the two zeros. Therefore

IF	WE SET P EQUAL TO
PI = 100	P = 1
PI = 200	P = 2
PI = 50	P = .5

DEFINITION:
CORE INFLATION is a measure of inflation with the inflation in food and energy prices removed.

BALANCE OF PAYMENTS ACCOUNTS:

CURRENT ACCOUNT (CA)

+ FINANCIAL ACCOUNT (FA) 0

BALANCE ON GOODS AND SERVICES

X - IM

CA -FA