Transcript Basic macroeconomic variables

National accounts and the
basic identities
Spanish national accounts

GDP: The GDP of a country is defined as the total market value
of all final goods and services produced within a country in a
given period of time (usually a calendar year). It is also
considered the sum of value added at every stage of production
(the intermediate stages) of all final goods and services
produced within a country in a given period of time.
GDP = consumption + Gross Investment + Public Expenditure
+ (Exports-Imports)

NDP: Net domestic product. If we include depreciation in GDP
(gross investment instead of net investment) we get the NDP.
NDP= consumption + Net Investment + Public Expenditure +
(Exports - Imports)
Spanish national accounts


GNP: Gross National Product. It is measured including total
expenditure of every citizen or national of one economy, total
public expenditure and total national investment. It stresses who
possess the output, not where it was generated. It was widely
used until 1992.
NNP: Net National Product. It is obtained discounting
depreciation from GNP.
Production can also be:
1. Nominal: Production is valued at current prices of the year
when goods are produced. Problem: if we only have nominal
GDP data, an increase in inflation may appear as an increase in
the GDP.
2. Real: Valued at constant prices (taking a year’s prices as a
reference, or deflacting production according to inflation index).
Basic identities

In what follows we set some assumptions in order
to simplify notation:
 No depreciation (GNP = NNP).
 No income or tranfer flows coming from nationals abroad,
nor from foreigners living in the economy to their
countries (GDP = GNP = NNP).
 Public sector expenditure is aimed to purchase goods
and services (G); the government only collect direct taxes
(T). There isn’t public investment, nor indirect taxes, nor
subsidies to companies.
 Firms’ profits are completely paid to stakeholders.
Companies don’t save, and they don’t pay taxes.
Basic identities


All output measures are now the same:
PIB = PNB = PNN.
Output (Y) matches national expenditure (NE), which can be
defined as follows:
NE ≡ C + IR + G + X – IM





IR = IP + IS , where IR is current investment, IP planned
investment and IS stock investment.
C is consumption.
G, public expenditure.
X, exports.
IM, imports.
Basic identities
 As output (Y) matches national income, available income
is what we get after paying direct taxes:
YD ≡ Y – T ≡ C + S
Basic identities
 Now, combining the three previous identities, we get the basic
identity:
C + IR + G + X - IM ≡ Y ≡ C + S + T
 Applying algebra, we can get the indebtment identity, which
represents the relation between private saving and private
investment (S – I), budget deficit or superavit (G – T) and trade
deficit or surplus (X – Q):
S – I ≡ (G – T) + (X – IM)
 We can also transform it a bit and we get:
S + (T – G) – I ≡ X – IM
 On the left hand side we have national saving minus investment,
and on the other side the trade balance. If national saving is
larger than investment, (S + (T – G) – I > 0), then we finance
the rest of the world; thus, we have trade surplus in our economy
(X – IM > 0), while there is a trade deficit in the rest of the world.
Basic identities
 Putting together all the identities we have used, we get:
NE ≡ C + IR + G + X – IM
YD ≡ Y – T ≡ C + S
S – I ≡ (G – T) + (X – IM)
C + IR + G + X - IM ≡ Y ≡ C + S + T
Fuente: Belzunegui y Cabrerizo (2007)
Fuente: Belzunegui y Cabrerizo (2007)
Current Account Balance, Public Superavit (+) or
Deficit, Investment and Saving in the Spanish
Economy