(In) Net Investment = (Ig) Gross investment - Depreciation
Xn
(Xn) Net Exports = (Xg) Exports - (M) Imports
Monetary Measure
Idea that all goods and services are boiled down to a monetary value
GDP Exclusion
GDP Excludes non production transactions Public transfer payments - social security, wealth-fare, veterans
Private transfer payments - gifts
Stock market transactions - buying or selling of stokes bond
Second hand sales
Types of goods and multiple counting
There are many stages of goods. RAW goods, intermediate goods, finished goods. In order to avoid multiple counting finished goods are the only ones counted in GDP
Define GDP
Gross Domestic Product - Measures total output of finished goods over a given period within a given countries borders.
Measures:
Finished goods
Produced within a country
For a set period of time
Calculating GDP : Expenditure or Output Approach
GDP = C + Ig + G+ Xn
+ (C) Consumption by households
+ (Ig) Investments expenditures by business
+ (G) Government purchases of goods and services
+ (Xn) Expenditures by foreigners
Calculating GDP : Income or Allocations approach
GDP =
//START NI
+ Wages (income earned by population)
+ Rents (income earned by landlords)
+ Interest (Interest earned by banks and business providing loans. Also includes interest earned on accounts)
+ Proprietors Income (Income owned by sole-proprieterships owners)
+ Corporate Profits ( Income earned by big business)
+ Tax on Imports Exports
+ Statistical Adjustment
//END NI
- NFFI (Net foreign Factor Income)
+ Consumption of fixed income (depreciation)
National Income
Income earned by the people of a nation domestic or foreign. As opposed to domestic income
+ Wages (income earned by population)
+ Rents (income earned by landlords)
+ Interest (Interest earned by banks and business providing loans. Also includes interest earned on accounts)
+ Proprietors Income (Income owned by sole-proprieterships owners)
+ Corporate Profits ( Income earned by big business)
+ Tax on Imports Exports
+ Statistical Adjustment
Define NFFI (Net Foreign Factor Income)
The difference between money received by foreign workers domestically and money received from domestic workers foreignly.
NFFI is subtracted from GDP but added in GNP.
Calculate NDP (Net Domestic Product)
NDP = GDP - Depreciation (consumption of fixed capital)
NI (National Income)
NI = NDP - Statistical Discrepancy + NFFI
Disposable Income
DI = GDP - Taxes - G
or
DI = Consumption + Savings
PI (Personal Income)
National Income
- Taxes
- Social Security
- Corporate Income tax
- Undistributed corporate profits
+ Transfer payments
APC
Average propensity to consume relative to income
APS
Average propensity to save relative to income
MPC
Marginal propensity to consume relative to income
MPS
Marginal propensity to save relative to income
Calculate Unemployment Rate
Unemployment / Size of Labor Force
Calculate size of Labor force
Employed + Unemployed
Calculate Not in the Labor Force
Size of Labor Force = Total population - 16 or Institutionalized
Define Okun's Law
Okun's law suggests a GDP gap of 2% for every 1% that the unemployment rate exceeds its natural rate. GDP Gap = ((Current Unemployment - Natural Unemployment) * 2)
Calculate Okun's Law
Okun's Law is GDP GAP due to unemployment
GDP Gap = ((Current Unemployment - Natural Unemployment) * 2)
Using Okun's Law Calculate lost GDP
Potential GDP * GDP Gap = Lost GDP
Calculate Rate of Inflation
(Current Year - Base Year) / Base Year
Rule of 70
The amount of time it takes to double an amount at a given rate 70 / Rate