Chapter5Summary - 1 Chapter 5 Summary Tucker Macroeconomics...

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Chapter 5 Summary Tucker , Macroeconomics for Today , 5th Edition 1. National income accounting is ex post in nature. It is "backward looking" and attempts to use information from production and exchange that have already occurred to estimate the amount of production and income generated by the market economy in a given year. 2. The national income accounts provide information on the level of actual economic performance. These measures are compared with estimates of potential economic performance (based on the production possibilities concept) to determine the extent to which the economy is or is not operating at peak or maximum performance levels. 3. You should be able to define, and to understand the differences among, the following national income accounts: GDP (gross domestic product); NI (national income) and DI (disposable income). In addition, in principle, and with numerical examples, you should be able to calculate the values of each of these accounts, and the difference between any pairs of these accounts. Numerical illustrations are provided in the text, in the lecture notes, and in the homework. 4. Two different (but conceptually equivalent) ways exist to estimate the value of GDP. The "upper loop" (of the circular flow approach) is based upon the sum of the market values of all final goods purchased in a given year by households, business, government and the rest-of-the-world. Symbolically, the equation to remember is that GDP = C + I (g) + G + X-M where C = household consumptions purchases; I (g) = business investment purchases (called total or gross investment); G = purchases by all levels of government; X = exports from the U.S. purchased by the rest-of-the-world; and M = imports into the U.S. purchased from the rest-of-the-world. We add exports because anything the rest-of-the- world buys is considered to be final product. We subtract imports because we do not separately distinguish between the purchase of domestic vs. foreign goods in the expenditures of households, businesses and government.
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