KW_Macro_Ch_07_Sec_01_The_National_Accounts

KW_Macro_Ch_07_Sec_01_The_National_Accounts - chapter 7 >...

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>> Tracking the Macroeconomy Section 1: The National Accounts chapter 7 Almost all countries calculate a set of numbers known as the national income and product accounts . In fact, the accuracy of a country’s accounts is a remarkably reliable indicator of its state of economic development—in general, the more reliable the accounts, the more economically advanced the country. When international eco- nomic agencies seek to help a less developed country, typically the first order of busi- ness is to send a team of experts to audit and improve the country’s accounts. In the United States, these numbers are calculated by the Bureau of Economic Analysis, a division of the U.S. government’s Commerce Department. The national income and product accounts, often referred to simply as the national accounts, keep track of the spending of consumers, sales of producers, business investment spending, government purchases, and a variety of other flows of money between dif- ferent sectors of the economy. Let’s see how they work. The national income and product accounts, or nation- al accounts, keep track of the flows of money between different sectors of the economy.
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The Circular-Flow Diagram, Revisited and Expanded To understand the principles behind the national accounts, it helps to look at Figure 7-1, a revised and expanded circular-flow diagram similar to the one we introduced in Chapter 2. Recall that in Figure 2-7 we showed the flows of money, goods and serv- ices, and factors of production through the economy. Here we restrict ourselves to flows of money but add extra elements that allow us to show the key concepts behind the national accounts. As in our original version of the circular-flow diagram, the underlying principle is that the flow of money into each market or sector is equal to the flow of money coming out of that market or sector. Figure 2-7 showed a simplified world containing only two kinds of “inhabitants,” households and firms. And it illustrated the circular flow of money between households and firms, which remains visible in Figure 7-1. In the markets for goods and services, households engage in consumer spending, buy goods and services from domestic firms and from firms in the rest of the world. Households also own factors of production— labor, land, physical capital and financial capital. They sell the use of these factors of pro- duction to firms, receiving wages, rent, profit, and interest payments in return. Firms buy and pay households for the use of those factors of production in the factor markets. Most households derive the bulk of their income from wages earned by selling labor. But households derive additional income from their indirect ownership of the physical capi- tal used by firms, mainly in the form of stocks, shares in the ownership of a company, and bonds, borrowing by firms in the form of an IOU that pays interest. So the income households receive from the factor markets includes profit distributed to shareholders,
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This note was uploaded on 04/10/2008 for the course ECONOMICS 103 taught by Professor Sheflin during the Spring '08 term at Rutgers.

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KW_Macro_Ch_07_Sec_01_The_National_Accounts - chapter 7 >...

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