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National Income Accounting
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Measurement of the national economy's performance, dealing with the overall economy's output income.
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5 Major statistics measuring the economy:
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GDP, national income, personal income, and disposable personal income.
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Gross Domestic Product (GDP)
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The dollar amount of all final goods and services produced within a nation in a year.
Can be unreliable because it does not measure unpaid work or depreciation.
Can be unreliable because it does not measure unpaid work or depreciation.
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4 Categories of Expenditure in the Economy
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1) Consumer Sector (C) or those goods and services bought by consumers for their direct use.
2) Investment Sector (I) or business purchases of tools, machines, buildings, and so on, used to produce other goods. This area also includes money spent on business inventories.
3) Government Sector (G) The goods and services brought by federal, state, and local government.
4) Net Exports (X) The difference between what a nation sells to other countries and what it buys from other countries.
2) Investment Sector (I) or business purchases of tools, machines, buildings, and so on, used to produce other goods. This area also includes money spent on business inventories.
3) Government Sector (G) The goods and services brought by federal, state, and local government.
4) Net Exports (X) The difference between what a nation sells to other countries and what it buys from other countries.
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Depreciation
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Loss of value because of wear and tear to durable goods and capital goods.
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Net Domestic Product (NDP)
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Value of the nations total output (GDP) minus the total value lost through depreciation on equipment.
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National Income (NI)
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Total income earned by everyone in the economy
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Personal Income
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Total income that individuals receive before personal taxes are paid.
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Transfer Payments
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Welfare and other supplementary payments that a state or the federal government makes to individuals.
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Disposable Personal Income (DI)
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Income remaining for people to spend or save after all taxes have been paid.
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Inflation
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A prolonged rise in the general price lever of goods and services.
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Purchasing Power
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The real goods and services that money can buy; determines the value of money.
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Deflation
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Prolonged decline in the general price level of goods and services.
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Consumer Price Index (CPI)
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Measurement in the change in price of a specific group of goods and services (market basket) that the average household uses.
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Market Basket
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Representative group of goods and services used to compile the consumer price index.
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Base Year
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Year used a a point of comparison for other years in a series of statistics. (Used to measure monthly CPI)
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Producer Price Index
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Group of indexes that measure the average change in prices that U.S. producers charge their customers.
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GDP Price Deflator
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Price index that removes the effect of inflation from GDP so that the overall economy in one year can be compared to another year.
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Real GDP
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GDP that has been adjusted for inflation by applying the price deflator.
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Measures of Inflation
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Consumer Price Index (CPI), Producer Price Index (PPI), and GDP Price Deflator
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Aggregates
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Summation of all the individual parts in the economy.
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Aggregate Demand
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Total quantity of goods and services in the entire economy that all citizens will demand at any single time
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Aggregate Demand Curve
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A graphed line showing the relationship between the aggregate quantity demanded and the average of all prices as measured by the implicit GDP price deflator.
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Aggregate Supply
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Real domestic output of producers based on the rise and fall of the price level.
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Aggregate Supply Curve
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A graphed line showing the relationship between the aggregate quantity supplied and the average of all prices as measured by the implicit GDP price deflator.
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