- Postie= Deficit
- Negative= Surplus
Trade- Exports - Imports
- Positive= Surplus
- Negative= Deficit
National Income
- Compensation of Employees + Rents + Interest + Corporate Profits + Proprietor's income
- GDP - Indirect Business Taxes - Depreciation - net Foreign Factor Payment
Disposable Personal Income: National Income - Personal Household Taxes + Government Transfer Payments
Net Domestic Product (NDP): GDP - Depreciation
Net National Product (NNP): GNP - Depreciation
GNP: GDP + net Foreign Factor Payment
Nominal and Real GDP
- Nominal GDP: The value of output produced in current year prices
- Price x Quanity
- Can increase from year to year if either price or quantity increase
- If we wanted to measure an increase in prices (inflation), use nominal GDP
- Real GDP
- Price x Quanity
- Adjusted for Inflation
- Used to measure economic growth
- Can Increase from year to year only if output increases
GDP Deflator- Price index used to adjust from nominal to real GDP
- (Nominal GDP/ Real GDP) x 100
- In base year, GDP deflator always =100
- For years after base year, GDP Deflator > 100
- For years before base year, GDP Deflator < 100
Consumer Price Index(CPI)- Most commonly used measurement of inflation
- Measures the cost of a market basket of goods of typical urban American family
- (Cost of a Market Basket of goods in a given year/ Cost of a Market Basket of goods in the base year) x 100
Inflation Rate- ((Price Index in year 2 - Price Index in year 1)/ Price Index in year 1) x 100
Nominal Interest Rate-% increase in money where the borrower must pay the lender for a loan
- NOT adjusted for inflation
- Expected interest rate + Inflation premium
- Unanticipated Inflation
Real Interest Rate- % increase in purchasing power where the borrower must pay the lender for a loan
- Adjusted for inflation
- Nominal Interest Rate - Inflation
- Fisher Effect
- Anticipated Inflation
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