Principles of Economics- Mankiw (5th) 542

Principles of Economics- Mankiw (5th) 542 - 560 PA R T N I...

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560 PART NINE THE REAL ECONOMY IN THE LONG RUN As a starting point for an analysis of financial markets, we discuss in this sec- tion the key macroeconomic variables that measure activity in these markets. Our emphasis here is not on behavior but on accounting. Accounting refers to how var- ious numbers are defined and added up. A personal accountant might help an in- dividual add up his income and expenses. A national income accountant does the same thing for the economy as a whole. The national income accounts include, in particular, GDP and the many related statistics. The rules of national income accounting include several important identities. Recall that an identity is an equation that must be true because of the way the vari- ables in the equation are defined. Identities are useful to keep in mind, for they clarify how different variables are related to one another. Here we consider some accounting identities that shed light on the macroeconomic role of financial markets. SOME IMPORTANT IDENTITIES
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