National Income and Product Accounts (NIPA) Accounting system

National Income and Product Accounts (NIPA) Accounting system

National Income and Product Accounts (NIPA) Accounting system for the U.S. to measure aggregate economic activity www.bea.gov United Nations System of National Accounts International standard system of national accounts unstats.un.org Gross Domestic Product (GDP) Market value of final goods and services newly produced within a nation during a fixed period of time

Market value Newly produced final goods and services Fixed period of time GDP per capita is an economys GDP divided by its population U.S. GDP Chained 2005 Dollars per-capita real GDP real GDP

www.economagic.com The Income-Expenditure Identity Y = C+I+G+NX Y = GDP (Income) C = consumption I = investment

G = government purchases NX = net exports What is produced is spent somewhere The Income-Expenditure Identity Expenditures in 1996 Billions of dollars Percent of GDP Personal Consumption Expenditures (C)

Gross private domestic investment (I) Government purchases of goods and services (G) Net exports (NX) Exports Imports 5151 1117 1406 -99 855 954

68.0 14.7 18.6 -1.3 11.3 12.6 Total (equals GDP) (Y) 7576 100.0

GDP is same as National Income GDP = National Income + Indirect taxes +Depreciation - Net Factor Payments (NFP) The income approach says that what is produced is income to someone National Income Income in 1996

Billions of dollars Percent of GDP Compensation of employees Proprietors' income Rental income of persons Corporate profits Net interest 4449 518

127 654 403 58.7 6.8 1.7 8.6 5.3 Total (equals National Income) 6151

81.2 National Saving S = Y+NFP-(C+G) Savings rate is savings as a percent of GDP Current Account CA = NX+NFP = S-I Budget Deficit Sg = (T-TR-INT)-G

T = Tax Receipts TR = Transfers to private sector INT = interest on national debt G = Government purchases Sg=Budget (surplus if positive, deficit if negative) U.S. Budget Deficit

Some Fundamental Prices The General Price Level Y = nominal GDP Y=P*y P = GDP deflator or simply market price y = real GDP or quantity of goods produced The General Price Level Price growth = inflation: Pt 1 t 1

1 100 Pt Real GDP growth: yt 1 g t 1 1 100 yt Consumer Price Inflation

research.stlouisfed.org/fred2 Nominal Interest Rate The (short-term) interest rate is the risk-free rate of return that can be earned in the market. R = Dollar interest rate Invest $1 today at the rate R Receive $(1+R) in one period (day, week, month, year, etc.). Ex Post Real Interest Rate The (ex post) real interest rate, r, is the rate of return in units of goods.

r=R- (Ex post) real interest rate is nominal interest rate minus (realized) inflation. Ex Ante Real Interest Rate: The Fisher Equation The inflation rate is typically not known Expected (ex ante) real interest rate = nominal interest rate - expected inflation re = R - e The expected real interest rate is the nominal interest rate less expected inflation the Fisher equation

Inflation and Nominal Interest Rate in the United States Interest Rate R Nominal Interest Rate Inflation Inflation Glossary of Terms

GDP NFP GNP C I G X M NX S T TR INT

Pt R r Gross Domestic Product (also Y) Net Factor Payments Gross National Product = GDP + NFP National Consumption National Investment Government Expenditure Exports Imports

Net exports = X - M National Saving = Spvt + Sgovt Total taxes Transfer payments Interest payments Inflation General price level at time t Nominal interest rate Real interest rate (ex post)

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