Essential Macroeconomic Identities and Definitions

Macroeconomic Variables and National Accounts Identities

Key Definitions of Income, Savings, and Consumption

• W: Labor Income Before Taxes
• NOS: Net Operating Surplus (Profits Before Taxes)
• Rg: Government Revenue (Income obtained from public properties)
• Cd: Private Consumption (Household consumption spending)
• Yd: Disposable Income (The sum of all household income in a country, after tax)
• Cg: Current Public Consumption (Government expenditures on current goods and services)
• Ig: Public Investment

Savings and Surplus Components

• Sg: Public Savings
  • Formula: Sg = Rg + Td + Ti - Zg - H - Cg
• Sf: Corporate Savings (Reserves/Undistributed profits)
• GOS: Gross Operating Surplus (Profit of firms)
  • Formula: GOS = Sales - Intermediate Consumption - Salaries
• NOS: Net Operating Surplus
  • Formula: NOS = GOS - S = Td,f + Dividends + Sf (Where S is Depreciation)
• Sed: Household Savings
  • Identity: Sed = Yd - Ced

Taxes and Public Transfers

• Td,ed: Direct Income Tax (Personal income tax)
• Td,f: Corporation Tax
• Ti: Indirect Taxes (e.g., collection via VAT)
• H: Public Transfers (Current transfers to domestic economies, including unemployment and pension subsidies)
• Zg: Public Sector Current Transfers to the Rest of the World

National Accounts Aggregates and Relationships

Core Identities

• Net National Product at Factor Cost (NNPfc or Y)
  • Identity: Y = NNPfc = W + NOS + Rg
• Disposable Income (Yd)
  • Identity: Yd = NNPfe or Y - Sg - Rg - Td + H + Zed
• Household Consumption (Ced)
  • Identity: Ced = Yd - Sed

Gross vs. Net Terms

• Gross Domestic Product (GDP): GDP = NDP + S (Where S is Depreciation)
• Net Domestic Product (NDP): NDP = GDP - S

Market Prices vs. Factor Cost

• GDP at Market Prices (GDPmp): GDPmp = GDPfc + Ti
• GDP at Factor Cost (GDPfc): GDPfc = GDPmp - Ti

Derivation of Net National Product

NNPfc = GDPmp - S + SBR - Ti

Government Budget and Spending

• Government Deficit/Surplus: -defg = Sg - Ig
• Budget Balance Condition (when defg=0): Sg = Ig
  • This implies: Sg = Rg + Td,ed+f + Ti - H - Cg
• Total Government Spending (g): g = Cg + Ig

External Sector and International Transactions

Net Factor Income and Transfers

• rfne: Domestic Factor Income Obtained Abroad
• rfen: Foreign Factor Income Obtained Domestically
• Zed: Current Transfers from Abroad to Households
• SBR (Net Factor Income from Abroad): SBR = rfne - rfen
• Z (Net Current Transfers): Z = Zed - Zg

Domestic vs. National Aggregates

• Gross National Product (GNP): GNP = GDP + SBR
• Closed Economy Condition: GDP = GNP
• Open Economy Condition: GNP = GDP + SBR

Balance of Payments Components

• SBSS (Trade Balance / Net Exports):
  • SBSS = X (Exports of goods and services) - V (Imports of goods and services)
• F: Capital Transfers Received (Transfers from the rest of the world entering the country)
• NVA: Net Investment of the country abroad
• NVL: Net Investment from abroad in the country
• SBCF (Financial Account Balance):
  • SBCF = NVA - NVL + ΔReserves

Behavioral Functions and Economic Models

Simplified Income and Spending

• Disposable Income (Simplified): Yd = Y + H - T
• Aggregate Demand Identity: Yd = C + I + G
• Planned Spending Components: Planned Investment (id); Government Spending (g = cg + ig)

Linear Functions (Keynesian Model)

• Consumption Function (C): C = Ca + Cy * Yd
• Savings Function (Sed): Sed = Yd - C
• Public Revenues (T): T = Ta + Ty * Y
• Public Transfers (H): H = Ha + Hy * Y