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 www.economagic.com per-capita real GDP real GDP

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 444958.7 Proprietors' income 5186.8 Rental income of persons 1271.7 Corporate profits 6548.6 Net interest 4035.3 Total (equals National Income) 615181.2

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 S g = (T-TR-INT)-G T = Tax Receipts TR = Transfers to private sector INT = interest on national debt G = Government purchases S g =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. 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. Ex Post Real Interest Rate

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

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

20. Glossary of Terms GDPGross Domestic Product (also Y) NFPNet Factor Payments GNPGross National Product = GDP + NFP CNational Consumption INational Investment GGovernment Expenditure XExports MImports NXNet exports = X - M SNational Saving = S pvt + S govt TTotal taxes TRTransfer payments INTInterest payments  Inflation P t General price level at time t RNominal interest rate rReal interest rate (ex post)