21. Measurement of national output, unemployment and price level. National income accounting and the real living standard.
GDP - gross domestic product.
GDP – is the value of final output produced within the country over a 12-month period.
Domestic residents – are people who live on the territory more than 1 year and have economic interest.
Final output is a sum of goods and services value that will not be processed, not used in production (further production) during the current year. Final output = Total output – intermediate output.
Intermediate output – output, used in further production process.
GDP is counted as a sum of value added.Value added is the extra value that each firm adds to a product.
Σ(Value Added) = Factor payments + depreciation (обесценивание)
Σ(VA) = Σ(Final Output)
GNI – Gross National Income
GNP – the sum of incomes earned by economy over a 12-month period (the sum of income earned by domestic residents within country and abroad).
GNI = GDP + national from abroad.
National income from abroad = (property income or factor payments of domestic residents from abroad) – (factor payments of foreign residents in a given country).
Net Domestic Product
NDP (in terms of product) or Net National Income (in terms of income).
NDP – annual final output produced by domestic residents over and above capital goods worn out during the year.
NDP = GDP – depreciation.
NNI (Y) = GNY – depreciation.
Where depreciation is capital consumption – a decline in value of capital equipment due to age or wear.
Households or personal disposable income
Personal Disposable income (PDI) - is the total income available to households to spend after the payment of all taxes.
PDI = NNI(at market prices) – indirect taxes (tin) – company taxes – personal taxes – undistributed profits +subsidies+ benefits (transfer payments).
Three ways of GDP calculation:
Produced method or output approach according to it, GDP is a sum of value added in the economy.
Income methods or allocation approach. According to this GDP is a sum of factor payments. That’s incomes from factors of production.
Expenditure method or approach. According to this method, GDP is a sum of all expenditures in the economy.
Value(of national output) = National income = National Expenditures
Unemployment rate
Urate = (unemployed people) / (the site of labour force) * 100% = = (unemployed people) / (employed + unemployed) * 100%
Labour force – includes people who want and are able to work, people who are not included in LB.
22. Classical economics and the Keynesian revolution: the major areas of disagreement
The general ideas
Classical |
Keynesian |
1.There is a long run equilibrium.
|
1. There might be a persistent disequilibrium in the modern market economy. |
2. Short run disequilibrium are abolished by market mechanism. |
2. This disequilibrium can't be eliminated with the existent market mechanism. |
3. There are no such long-run problems in the economy, as recession, unemployment, recession. |
3. There are such problems as there is a long-run unemployment. No inflation in this period (1936) |
4. Government should not interfere in market mechanism. Markets are people running themselves |
4. Gov-t should interfere in the economy in order to correct disequilibrium. |
Areas of disagreement
Areas |
Classical |
Keynesian |
1 – Prices and Wages |
Prices and wages are relatively flexible. Markets tend to clear quickly.
|
Prices and wages are relatively inflexible. Impossible for prices and wages to fall down. Government price policies, final anti-monopoly laws. Because monopolies try to keep prices at high level. Wages don't tend to fall and as a result markets can't automatically restore equilibrium. |
2 - Macroeconomic Equilibrium |
W=J (Withdrawals = inJections) W=S+T+M; J=I+G+X So, appears that Saving=Investment because interest rates are flexible. iMport=eXport because of gold standards system. Exchange rate for currencies in terms of certain amounts of gold. M>X => country experience outflow of gold => money decrease => P(W) decreases => M decreases, X increases => X=M Taxes=Government because government must balance its budget. |
W <> J So: S <> I, M <> X, T <> G Because not only interest rate included, but other determinants. Interest rate depends not only on savings investment interaction, but on speculation in the money market. M<>X because gold standard was abolished after WWII. Currency system doesn't lead to automatic balance between X and I. T<>G. |
3 - Elasticity of AS curve and stability of AD
|
AS curve is inelastic, it is vertical. AS = Ypotential
This statement is based on Say's law. Supply creates its own demand. Production generates income. The owners of resources are in power. Owners spend this income on amount of services in the economy. Production = Consuming Because AD depends on 2 factors: money supply (by government) and on purchasing power of money (by price law). |
AS supply curve is elastic
AS depends on AD. In other words, Say's law is wrong, because part of income may be saved. Greater AD, bigger AS in the economy.
AD is instable, because of instability of investment. AD consists of C + G + I + Xn. I - the most inflexible one.
|
4 – Inflation (velocity of money circulation |
MS – money supply V-velocity P-price index Y-value of national output MsV=PY V is stable and depends on D for money. Y is stable too. |
1)Increase in MS does not necessary lead to inflation. V is instable. Y depends directly on MS. 2)Inflation may be caused by sufficient increase in AD. |
