Economics 1 - CIIA

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

during a particular period.

- Expenditure decomposition: main use of the final products

(C+I+G+NX)

- 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)

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)

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.

- Net debtor countries, with negative net foreing assets, 

 (GNP < GDP)

- for closed countries (GNP = GDP)

- 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 = GNP - C - G = CB + I

CB = S - I

when tax revenues fall short of government expend, 

country has a budget deficit (BD)

BD = G - T = -S^G

high budget deficits

from low private net saving

or from both

GDP grows when prices rise (inflation) or 

when more quantities are produced.

- to account for changes in production, we need to

fix prices in a base year to measure real GDP

(GDP nominal / GDP real) * 100 = GDP Deflator

100 /  80 * 100 = 125 (prices have gone 25% up from 80 to 100)

CPI = market basket in the year you're looking for / market basket in base year * 100

market basket 09: 20     

                           10: 40

40 / 20 * 100 =  200 = prices have gone up by 100 % from 2009 to 2010

- CPI includes imported goods and services

- GDP deflator includes investment goods and

government expenditures

- CPI is a fixed-weight index, the GDP defl. a variable

weight index.

Example: Suppose W _t+k is the nominal wage in year t+k. 

What is the wage in prices of base year t (the real wage) ?

- Because prices have increased by factor P _{t+k /} P_{t, the real wage is}

Wreal _{t+k =} W _{t+k *} P _{t /} P _{t + k}

Nominal interesat rate

for investment in time interval

- for example if i = 0.05 then 1$ inested at t 

will worth 1.05$ at t+1

real interest rate bla bla bla

ante fisher

asdfsfd

Z = C + I + G

C = income - taxes plus transfers =

disposable income (Y_D)

C(YD) = c₀ + c₁ * Y_D

_{c0 + c1 constant parameters}

_{Keynsian consumption function}

Savings are also increasing in disposable income

(1-c1) < 1 is the marginal propensity to save (MPS)

-> MPS + MPC = 1

EMPK expresses the additional revenue of an

additional unit of capital. It declines with the overall level

of the capital stock.

- cost of capital includes depreciation and real interest rate

(cost of borrowing or opportunity cost of investment)

I = I(r, Y) real interest rates, Y output

I(r,Y) =d₀ - d₁ * r + d₂ * Y

d0 not influenced by r,Y

d1 influenced by r

d2 marginal capital coefficient, the higher the more capital-intense

- d₂ must be less than 1 - c₁

remember

BD = G - T

-BD = S^G = budget surplus = government savings

Z(r,Y) = Y(Y-T) + I(r,Y) G 

= c₀ + c₁(Y-T) + d₀ - d₁r + d₂Y + G

it can be written as investment = saving

I(r,Y) = S^P + S^G = S

..

Š

d