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Economics 1 - CIIA

Concepts, Major Macroeconomic, Variables and the IS-LM Model

Concepts, Major Macroeconomic, Variables and the IS-LM Model

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Erstellt / Aktualisiert 25.03.2014 / 26.01.2020
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National income identity formula ?


Y = C + I + G + NX

Y = GDP, C = private consumption, I = Investitions,

G = Gov. expend., NX = Net export

GDP (Gross Domestic Product)

what does it mesaure ? 

total value of final goods and services, produced by an economy 

during a particular period.

GDP can be calculated and decomposed in three ways

- Expenditure decomposition: main use of the final products


- Value added decomposition: which sectors generate how much value

(diff. between revenue and expend. for intermed. products)

- Decomposition by factor incomes (capital income, labor income, 

indirect taxes)

GNP (Gross national product)

measures the "total value of final goods and services

produced by productoin factors owned by domestic residents"

- diff. between GDP and GNP is net income received

from abroad (GNP = GDP + NIRA)

NIRA (net income received from abroad)

calculated by adding up the income received from all 

domestically-owned foreign assets and then subtracting

the income paid on all foreing-owned domestic assets.

- GNP is very close to GDP for most countries. 

- Countries that has more foreign assets than for. 

liabilites is called a foreing creditor (GNP > GDP)

- Net debtor countries, with negative net foreing assets, 

 (GNP < GDP)

- for closed countries (GNP = GDP)

GNP = GDP + NIRA = C + I + G + NX + NIRA

                          CB = current acc. balance

CB = GNP - (C + I + G)

- a country that spends more than it produces

is running a current accoutn deficit (CB < 0).

- a country that produces more than it spends

has a current account surplus (CB > 0).


S (national savings)

S is defined as part of total production that is neither

consumed by individuals nor spent by Government.

S = GNP - C - G = CB + I

CB = S - I