Send the link below via email or IMCopy
Present to your audienceStart remote presentation
- Invited audience members will follow you as you navigate and present
- People invited to a presentation do not need a Prezi account
- This link expires 10 minutes after you close the presentation
- A maximum of 30 users can follow your presentation
- Learn more about this feature in our knowledge base article
National Accounting 1
Transcript of National Accounting 1
How does this map to standards of living?
Nominal vs Real variables
Micro - decisions under conditions of scarcity
attempts to aggregate and model these trillions of decisions
micro has a solid theoretical foundation - macro does not
explain the relationship between such factors as
international trade and
Many competing schools of thought on how the economy works
Broadly macro is split into those that think that government should not intervene in the market and those that think that they should
Whichever school is winning the argument is important to all of us
The Big Issues in Economics
Short term - The Business Cycle
Long Term - Economic Growth
...concerned with counting the total amount of goods and services produced within some "boundary"
1. GNE (Gross National Expenditure)
2. GDP (Gross Domestic Product)
3. GNP (Gross National Product)
4. GNDI (Gross National Disposable Income)
5. GNS (Gross National Saving)
6. NNS (Net National Saving)
7. CAB (Current Account of the Balance of Payments)
Nominal GDP is the money value of all goods and services that are produced within a country's territory
Real GDP is a measure of the quantity of all goods and services that are produced - it is GDP adjusted for inflation
- it is the most widely used metric of the standard of living of a country
- this is a better measure...why the difference?
Here, the pink area is nominal GDP in year 1
The red square represents an increase in the level of goods produced - this makes us better off
The green rectangle is just an increase in price level - it does not increase our standard of living
Imagine a country that only produces one good - avocadoes
Real GDP increases when avocadoes are more plentiful
Nominal GDP increases by more than real GDP when the price of avocadoes increases
This implies that in a one good economy only changes to real output affect welfare (the standard of living)
(Why? Because Q appears in the household utility function but not P)
Nominal vs Real variables
What about a country with more than one product?
5 avocadoes and 10 bananas are picked this year
6 avocadoes and 9 bananas are picked next year?
First - pick a base year where (nominal GDP=real GDP)
- this choice is arbitrary
Second - Use the prices of this base year to evaluate output in the following year - in effect holding prices constant at the base year
Here theta is the share of expenditure on avocadoes
Making this the share of expenditure on bananas
Multiply each term by 1
This means that growth in Real GDP is the growth in avocadoes produced by the 'expenditure share' of avacadoes from the base year PLUS the growth in bananas produced by the 'expenditure share' of bananas in the previous year
NOTE - the level of real GDP is meaningless - only the growth rate of GDP relative to some base year
What is nominal GDP for 2000?
What is nominal GDP for 2001?
What is real GDP for 2001?
What are the expenditure shares for 2000?
What is the growth in real GDP?
What is real GDP in both years in apple equivalents?
What is the growth in real GDP in apple equivalents?
You can see that growth rate of real GDP is independent of use of currency or output
Say a household has the simple utility function:
here add 1 and then subtract 1 in the form a/a and b/b
this uses an approximation of the Taylor series
It can be shown that when utility is maximised then phi is the optimum expenditure share on apples
This implies that, if theta and phi are equal, when real GDP goes up, utility goes up
the aggregate expenditure share
Prices tend to rise over time but not always...