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