7 National Accounts
Objectives
- Compute measures of the economy
- Gross National Expenditure
- Gross Domestic Product
- Gross National Income
- Gross Disposable National Income
7.1 GDP Components
| Measure | Description |
|---|---|
| Consumption \(C\) | Total spending by private households on final goods and services, including nondurables |
| Investment \(I\) | Total spending by firms or households on final goods and services to make additions to the stock of capital |
| Government Expenditures \(G\) | Spending by the public sector on final goods and services |
| Trade Balance \(TB\) | Net exports of goods and services, defined as exports minus imports \(EX - IM\) |
7.2 Measures of the Economy
| Name | Measure | Formula | Description |
|---|---|---|---|
| Gross National Expenditure | GNE | \(C + I + G\) | Total expenditure on final goods and services by home consumers, businesses, and government |
| Gross Domestic Product | GDP | \(C + I + G + (EX - IM)\) | Total value of goods and services produced plus net exports |
| Gross National Income | GNI | \[\begin{align}&C + I + G + (EX - IM) \\ &+ (EX_{FS} - IM_{FS})\end{align}\] | GDP plus net income from abroad (factor services) |
| Gross Disposable National Income | GNDI | \[\begin{align}&C + I + G + (EX - IM) \\ &+ (EX_{FS} - IM_{FS}) + (UT_{IN} - UT_{OUT})\end{align}\] | GNI plus net unilateral transfers |
7.2.1 Gross Domestic product
We start by develop gross domestic product, which measures the overall production of the economy. We begin with our gross national expenditure measure. We make two changes. First, we add exports because an exported product was produced but not consumed. Second, we subtract imports because imported products were consumed but not produced.
7.2.2 Gross National Income
We now move to our measure of the economy’s income. We add and subtract two measures of income. First, we add factor service exports: income earned by citizens abroad. This income isn’t registed domestically or in exports and imports. Second, we remove factor service imports: income paid to foreign entities for owning capital, labor, and land within the home economy.
7.2.3 Gross National Disposable Income
We move to our last measure, Gross National Disposable Income, which measures the total income resources available to the economy. This comes from net unilateral transfers, income payments that are not exchanged for a particular good or service.