lecture1 - Lecture 1. National Income Accounting and the...

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Lecture 1. National Income Accounting and the Lecture 1. National Income Accounting and the Balance of Payments Balance of Payments
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National Income Accounts: Closed Economy Recap closed economy macro variables: Y = gross national product (GNP) Total value of all final goods and services produced by a country’s factors of production National Product = National Income Final goods and services ”; value-added example; no double counting Produced by a country’s factors ”; e.g. profits of a US overseas factory remitted to the US are part of US GNP What is produced within a country’s borders regardless of factor ownership, is called GDP . GNP = GDP + factor ownership
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Circular Flow Diagram Households Firms Goods Market Factor Market Income Consumption
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Adding the Financial Sector Households Firms Goods Market Factor Market Financial Market Consumption Investment Output Income Saving Borrowing
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Adding the Government Sector Goods Market Factor Market Financial Market Consumption Investment Output Income Saving Borrowing Households Firms Governments (Federal, State, Local) Taxes Transfers Bud Deficit Govt.
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National Income Accounts: Closed Economy How is this output used? C = private consumption – Purchases by private sector for current wants (US: 62-69% of GNP) I = investment – Current output used to increase the domestic capital stock and produce more output in the future. – Economic definition of investment is a little different from the common usage. If you buy stocks and bonds, it is saving not investment. When company you bought stock from uses the money you gave them to buy capital, machinery to make more output, this is called investment . - 12-19% of US GNP
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National Income Accounts: Closed Economy G = government expenditure – Goods and services purchased by the public sector example: the government buys bombers for a war. – But government spending on welfare (i.e., transfers ) does not get counted here, because money is given to people who use it for the consumption, and it will be counted there.
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Closed economy national income identity Y= C + I + G Intuition : in a closed economy each item produced is going to be utilized for something within the country. – It will be consumed by private households or government , or it will be classified as investment , to produce future output (as capital or inventory) for future consumption. – We defined the variables on the right here so this is true
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lecture1 - Lecture 1. National Income Accounting and the...

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