National Income and Product Accounts (NIPA)

1. National Income and Product Accounts (NIPA) Accounting system for the U.S. to measure aggregate economic activity www.bea.gov United Nations System of National Accounts International standard system of national accounts unstats.un.org

2. Gross Domestic Product (GDP) Market value of final goods and services newly produced within a nation during a fixed period of time • Market value • Newly produced final goods and services • Fixed period of time GDP per capita is an economy’s GDP divided by its population

3. U.S. GDP Chained 2005 Dollars per-capita real GDP real GDP www.economagic.com

4. The Income-Expenditure Identity Y = C+I+G+NX • Y = GDP (Income) • C = consumption • I = investment • G = government purchases • NX = net exports What is produced is spent somewhere

5. The Income-Expenditure Identity Expenditures in 1996 Billions of dollars Percent of GDP Personal Consumption Expenditures (C)5151 68.0 Gross private domestic investment (I) 1117 14.7 Government purchases of goods and services (G) 1406 18.6 Net exports (NX) -99 -1.3 Exports 855 11.3 Imports 954 12.6 Total (equals GDP) (Y)7576 100.0

6. GDP is same as National Income GDP = National Income + Indirect taxes +Depreciation - Net Factor Payments (NFP) The income approach says that what is produced is income to someone

7. National Income Income in 1996 Billions of dollars Percent of GDP Compensation of employees 4449 58.7 Proprietors' income 518 6.8 Rental income of persons 127 1.7 Corporate profits 654 8.6 Net interest 403 5.3 Total (equals National Income) 6151 81.2

8. National Saving S = Y+NFP-(C+G) Savings rate is savings as a percent of GDP

9. Current Account CA = NX+NFP = S-I

10. Budget Deficit Sg = (T-TR-INT)-G • T = Tax Receipts • TR = Transfers to private sector • INT = interest on national debt • G = Government purchases • Sg=Budget (surplus if positive, deficit if negative)

11. U.S. Budget Deficit

12. Some Fundamental Prices

13. The General Price Level Y = nominal GDP Y = P * y • P = GDP deflator or simply market price • y = real GDP or quantity of goods produced

14. The General Price Level • Price growth = inflation: • Real GDP growth:

15. Consumer Price Inflation research.stlouisfed.org/fred2

16. Nominal Interest Rate • The (short-term) interest rate is the risk-free rate of return that can be earned in the market. • R = Dollar interest rate • Invest $1 today at the rate R • Receive $(1+R) in one period (day, week, month, year, etc.).

17. Ex Post Real Interest Rate • The (ex post) real interest rate, r, is the rate of return in units of goods. r = R -  • (Ex post) real interest rate is nominal interest rate minus (realized) inflation.

18. Ex Ante Real Interest Rate:The Fisher Equation • The inflation rate is typically not known • Expected (ex ante) real interest rate = nominal interest rate - expected inflation re = R - e • The expected real interest rate is the nominal interest rate less expected inflation – the Fisher equation

19. Inflation and Nominal Interest Rate in the United States Interest Rate R Nominal Interest Rate Inflation Inflation

20. Glossary of Terms GDP Gross Domestic Product (also Y) NFP Net Factor Payments GNP Gross National Product = GDP + NFP C National Consumption I National Investment G Government Expenditure X Exports M Imports NX Net exports = X - M S National Saving = Spvt + Sgovt T Total taxes TR Transfer payments INT Interest payments p Inflation Pt General price level at time t RNominal interest rate r Real interest rate (ex post)