ECON 102: National Accounts Formulas

In this document, we present the most important formulas used in Module 5.

GDP Related Measures

GDP versus GNP
The link between the gross domestic product (GDP) and the gross national product (GNP) is:

GDP + NFP = GNP ,

where NFP is the net factor payments from abroad: income paid to domestic factors of production by
the rest of the world, minus income paid to foreign factors of production by the domestic economy.

GDP: Expenditure Approach

Y = C + I + G + X − M ≡ C + I + G + NX
where Y is the GDP, C is private expenditure in final goods and services, G is public expenditure in
final goods and services, I is expenditure in capital goods (or investment), X is exports, M is imports
and NX is net exports (X-M).

Net Domestic Product (NDP): Income Approach

NDP =labour income + corporate profits + interest income
+ self-employed income + indirect taxes − subsidies

Net Versus Gross

The difference between gross and net measures is depreciation.

Net = Gross − Depreciation

Therefore:
GDP = Depreciation + NDP ,
where NDP is net domestic product. Similarly, gross investment (I) minus depreciation is equal to net
investment.

Private Disposable Income (PDI)

PDI = Y + NFP + TR + INT − T
where Y is the GDP, NFP is the net transfer payments from abroad, TR is the transfers received from
the government, INT is the interest payments on the government debt and T is taxes.

Econ 102 Module 5: Formulas Page 1 of 4

Net Government Income (NGI)
NGI = T − TR − INT ,
where TR the transfers received from the government, INT is the interest payments on the government
debt and T is taxes.

Current Account Balance (CA)

CA = NX + NFP ,
where NX is the net exports and NFP is the net factor payments from abroad.

Private Saving (Spvt )

Spvt = P DI − C = (Y + NFP + TR + INT − T) − C ,
where PDI is the private disposable income, C is consumption expenditure, Y is the GDP, NFP is
the net transfer payments from abroad, TR is the transfers received from the government, INT is the
interest payments on the government debt and T is taxes.

Government Saving (Sgovt )

Sgovt = N GI − G = (T − TR − INT) − G ,
where NGI is the net government income, G is government consumption expenditure, TR is the
transfers received from the government, INT is the interest payments on the government debt and T
is taxes.

National Saving (S)

S = Sgovt + Spvt ≡ I + CA ,
where Sgovt is the government saving, Spvt is the private saving, CA is the current account balance
and I is the investment expenditure.

Unchained Indexes
In the following, t is the current period and 0 is the base period. Therefore, Pit and Qit are the price
and quantity of good i at time t, and Pi0 and Qi0 are the price and quantity of good i at the base
period.

Paasche Quantity Index

PN
i=1 Pit Qit
P Qt/0 = PN × 100
i=1 Pit Qi0

Laspeyres Quantity Index

PN
i=1 Pi0 Qit
LQt/0 = PN × 100
i=1 Pi0 Qi0

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Fisher Quantity Index
q
F Qt/0 = P Qt/0 × LQt/0

Note that there is no need to multiply by 100 if PQ and LQ are not divided by 100. It is simply
a geometric mean of PQ and LQ. Alternatively, if you prefer, you can use the following equivalent
formula: r
P Qt/0 LQt/0
F Qt/0 = 100 × ×
100 100

Paasche Price Index

PN
i=1 Pit Qit
P Pt/0 = PN × 100
i=1 Pi0 Qit

Laspeyres Price Index

PN
i=1 Pit Qi0
LPt/0 = PN × 100
i=1 Pi0 Qi0

Fisher Price Index

q
F Pt/0 = P Pt/0 × LPt/0

Note that there is no need to multiply by 100 if PP and LP are not divided by 100. It is simply a
geometric mean of PP and LP. Alternatively, you can use the following equivalent formula:
r
P Pt/0 LPt/0
F Pt/0 = 100 × ×
100 100

Chained Indexes
This formula is a little more complicated. To simplify, suppose that It/2000 is an index base 100 =
2000 for the year t. Then the chained indexes (CIt/0 ) for t greater than 2000 are:

CI2001/2000 = I2001/2000
I2001/2000 I2002/2001
CI2002/2000 = × × 100
100 100
I2001/2000 I2002/2001 I2003/2002
CI2003/2000 = × × × 100
100 100 100
and so on, where I could be PQ, PP, LQ, LP, FQ or FP. For t less than 2000, the indexes are

CI1999/2000 = I1999/2000
I1999/2000 I1998/1999
CI1998/2000 = × × 100
100 100
I1999/2000 I1998/1999 I1997/1998
CI1997/2000 = × × × 100
100 100 100
and so on.

Econ 102 Module 5: Formulas Page 3 of 4

Nominal Versus Real
Nominal to Real
Let X be a nominal variable expressed in dollars and P be the price index base 100 = Y, where Y is
a particular year. The real value of X expressed in dollars of the year Y is:
X
Real X = .
P/100

For example, if X is equal to 150 dollars and the index base 100 = 2012 is equal to 120, the value in
dollars of 2012 is
150
= 125 dollars of 2012 .
120/100

Real Interest Rate

Let i be the nominal interest rate and π be the inflation rate. Then, the real interest rate r expressed
in percentage is:  
(1 + i)
r= − 1 × 100% ,
(1 + π)
where i and π are not expressed in percentage. For example, if i = 5% and π = 3%, the real interest
rate expressed in percentage is:
 
(1 + 0.05)
r= − 1 × 100% = 1.94% .
(1 + 0.03)

Using the approximation for growth rates from module 2, the real interest rate is approximately equal
to
r ≈ i−π,
where i and π can be expressed in percentage or not. For example, if i = 5% and π = 3%, the real
interest rate expressed in percentage is approximately equal to:

r ≈ 5% − 3% = 2% .

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