National income accounting, saving and investment.

A term used in economics to refer to the bookkeeping system that a national government uses to measure the level of the country's economic activity in a given time period. National income accounting records the level of activity in accounts such as total revenues earned by domestic corporations, wages paid to foreign and domestic workers, and the amount spent on sales and income taxes by corporations and individuals residing in the country.

Some of the metrics calculated by using national income accounting include gross domestic product (GDP), gross national product (GNP) and gross national income (GNI).

GDP = Y = G + I + C + Nx (expenditure approach)

Savings - the act corresponds to nominal preservation of money for future use. A deposit account paying interest is typically used to hold money for future needs, i.e. an emergency fund, to make a capital purchase (car, house, vacation, etc.) or to give to someone else (children, tax bill etc.). Savings depend on the interest rate. If interest rate is low (as it is in the US now), no reason to save money - it is better to spend them or invest in something different, for instance buy marketable securities abroad. The money leaves the country, exchange rate goes down, export rises, inflation expectations are increasing.

Investment is what provides for growth in aggregate wealth. However we cannot increase investment without increasing aggregate saving.

52. Labor markets and causes of unemployment.

Some indices to know:

Unemployment rate = (number of unemployed)/(labor force)

Labor-force participation ratio = labor force/ working age population

A person is unemployed when he belongs to a labor force, but he doesn’t work and is currently actively looking for an employment.

Unemployment: frictional (time to seek for a new job), structural (when some people aren’t qualified for job), cyclical (caused by changes in general output, economy slowdown). Full employment is when cyclical employment is zero.

There is dependence between inflation and unemployment. Higher inflation is usually accompanied with a lower unemployment.

Natural rate of employment = frictional + structural.

Demand-Supply model may explain changes on the market of labor. If the minimum wage is set by the government and it is above the equilibrium pay, the surplus of workforce occurs on the market. The economy moves from the equilibrium point.

Date: 2015-02-03; view: 592