1. National Accounts Flashcards
GDP definition
Market value of final goods and services produced in a particular location at a particular period
How does GDP measure the welfare of people?
-It measures the welfare the average individual derives from current consumption of goods and services plus future consumption utility which current investment goods will eventually generate in the future.
-But it omits everything else.
-GDP is also a measure of the returns on assets that an economy owns
What is net domestic product?
NDP = GDPt -Dt
Where Dt is depreciated capital
What is gross national product?
It is the market value of final goods and services produced by nationals across the world, typically including remittances and profit reparations
Economic growth
The growth rate of real GDP
How do we work out the real growth of an item
The items real growth = nominal growth - items inflation
What are the 5 Kaldor facts?
Main properties of LR growth
- GDP per worker grows at a constant rate
- The capital to GDP ratio is roughly constant
- Capital and labour shares are roughly constant
- The rate of return on investment (real interest rate) is roughly constant
- The real wage grows at a roughly constant rate
Why do we care about measurement?
There is no good theory without measurement. Theories must be consistent with empirical evidence
Why do we care about theory?
There is no good measurement without theory. Theory informs us on how to collect and organise information.
To explain phenomenon in the real world scientists develop theories
Why isn’t money a stable measure?
Due to inflation and the fact that different countries use different currencies
Why does NDP matter more for welfare than GDP?
Because resources that are used in depreciation can’t be consumed
What is NNP and what does it measure?
Net National Product
Measures the welfare of nationals
What is the fundamental accounting identity?
Yt= Ct + It + Gt + (Xt-Mt)
Y= GDP
C= private consumption (including durable and non durable G&S)
I= gross private investment, including structures, machinery, and software produced or bought by private firms
G= gov expenditures
X-M= net exports
What is GNI equal to?
GNP
Measures the value added by capital and labour
What is the relationship between GNP and GDP?
GNP= GDP- net transfers from the rest of the world
