The calculation of gnp expenditure

GNP = C + I + G + X ,

where:

C - personal consumption expenditures of households on durable consumer goods, goods for current consumption, and consumer spending on services.

I – gross private domestic investment, or "investment spending." They include three components: 1) the purchase of entrepreneurs machinery, equipment and tools, 2) all construction (commercial and residential construction), 3) investments in stocks.

G - government procurement, which include public consumption and public investment.

X – net exports. It represents the difference between income from exports and expenditure on imports of the country and meets the trade balance.

Calculating gnp by revenue

In this case, GDP is considered as the sum of revenue of owners of resources, i.e. as the sum of factor income [4, p.140].

Factor revenues are:

Wages and salaries of employees of private firms, i.e. payment for labor and all forms of remuneration.

• rent or rent - income from factor "land" and includes payments received by property owners.

• Interest payments, which are capital gains, the cost of use of capital used in production.

• revenue, that is income from factor 'entrepreneurial skills. "

In addition to factor income, the GDP calculated by the income stream includes two elements that are not income owners of economic resources. Indirect taxes on business - a general sales tax, excise taxes, license fees and customs duties. Another element to be considered in the calculation of GDP by income is depreciation, as it is also included in the price of any commodity.

The calculation of gnp "value added"

• With this method, the calculation of GNP must sum of value added by all sectors and industries in the economy. An objective analysis of the economy is possible only with a stable (or comparable) price level. Analysis of the price level is necessary in order to:

• - To know whether there have inflation or deflation,

• - Reduced to a single base heterogeneous component of total production.

Theme 11. Macroeconomic equilibrium

11.1 Macroeconomic equilibrium and its characteristics

The problem of maintaining economic stability and full employment is reduced to an economic policy which is based on the balance between supply and demand. All social production consists of thousands, millions of different goods and services, producers and consumers. We need to organize their relationships, that is, to reduce the number of separate in a single market.

In the common market is formed by the demand for a wide variety of goods and services.

На общем рынке формируется спрос на самые разнообразные товары и услуги.

Price AD

А

support

P1

АД

P2

Q1 Q2 Q

Fig. 20. Aggregate demand curve

• Aggregate demand (AD) - represented as a curve that shows the amount of goods and services that consumers, businesses, the government is ready to buy at any possible level of prices.

• Curve downward, has a negative slope, expresses an inverse relationship between the price level and the amount of the national product.

• Curve AD, as the curve D, shows that, other things being equal, the price reduction makes preferable for the buyer, the state; enterprises purchase large quantities of goods or services. Increase in the price level - leads to a backlash.

What factors determine a curve AD?

1. The effectiveness of the wealth (solvency of buyers).

2. The effective interest rate method.

3. The effectiveness of foreign purchases.

Changing these cost factors leading to displacement of the point on the graph, ie changing the value of the aggregate demand for domestic product, all other things being equal.

If you change at least one "other condition" that there is a change in demand for GDP (AD schedule shifts to the left or to the right).

Non-price factors affecting the change in demand (AD schedule shifts to the left or to the right):

1. Change in consumer spending.

2. The change in investment costs.

3. The change in government expenditure

4. The change in the cost of net exports.

The market generates the formation of aggregate demand aggregate supply.

Aggregate supply (AS) - this is a curve that shows the actual cash amount produced, for any given price level.

Relation between the volume of production and costs - direct, positive:

- Higher prices provide an incentive to increase production of PPR (real domestic product) and increase its offer.

- Low prices - reduce production PPR.

P AS

3

P3

2

P2

P1 1

RDP (Real Domestic Product)

Fig. 20. The aggregate demand curve

Aggregate supply curve has a slightly different look. Form AS depends on what happens to the cost per unit of output, and therefore the price, which should allow firms to cover costs and make a profit with an increase in real national output.

1. Horizontal line indicates that an increase RNP is at constant prices for the goods. This is possible when there is a significant unemployment and low employment of resources (short-term).

2. The intermediate segment increased production of RNP requires the involvement of a large number of resources, which, in turn, may be less skilled workers are less productive technology, which increases the costs, which means - the price of food to the production was profitable.

3. On the vertical segment economy reached full employment level at a given volume of production. Firms can expand production, while increasing the price, but it leads to overflow of resources from one to another grown without increasing the CHP, in other words, the AS curve becomes vertical lineConclusion: Thus, the increase in supply RPP left to right, depending on the level of prices, ie, there is a movement along the curve.

The offset to the left (right) AS curve characterizes the changes in aggregate supply.

This is a result of the influence of non-price factors:

1. Change in performance.

2. Change in the prices of resources.

3. Taxes.

4. Government regulation.

We consider separately the formation of aggregate demand and aggregate supply to achieve balance in the market, i.e. the equilibrium price level and equilibrium PPR, i.e. Q = Q AS AD.

P AS

Е

P3

E AD3

P2 E

P1 AD1 AD2

Q1 Q2 Q3 Q (RDP)

Fig. 21. Balance the aggregate demand and aggregate supply

If the equilibrium is reached in a horizontal section (in the short term), to obtain more income producers have to increase the volume of production, thereby bringing into production more resources and ensuring the growth of RDP.

If the equilibrium is reached at the intermediate segment, the result of competition in the market is formed equilibrium output and the equilibrium price, i.e. increasing the nominal NP and RNP.

If the balance is provided on the vertical segment (full employment of resources), the increase in prices due to the firm loses the incentive to expand production and increase RNP only nominal NP.

When striking a balance between aggregate demand and aggregate supply questions arise:

• Whether there are economic mechanisms operating automatically and makes full use of resources?

- How can we maintain the aggregate demand?

• How is the equilibrium at full employment?