MEASUREMENT

CHAPTER 2
Private Savings

▶ Private disposable income Y d :

Y d = Y + N F P + T R + IN T − T

▶ Private sector savings S p :

Sp = Y d − C
= Y + N F P + T R + IN T − T − C

MEASUREMENT 1/9
Government Savings

▶ Government revenue = T − T R − IN T
▶ Government expenditure = G
▶ Government savings S g :
S g = T − T R − IN T − G
▶ Government saving is simply the government surplus, or negative of the government
deficit D:

D = −S g
= −T + T R + IN T + G

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National Savings
▶ National saving S is the sum of private savings and government savings:
S = Sp + Sg
= Y + NFP − C − G
▶ Substitute for Y from income-expenditure identity:
S = C + I + G + NX + NFP − C − G
= I + NX + NFP
▶ Current account surplus: measure of the balance of trade in goods with the rest of the
world.
CA = N X + N F P
▶ Thus,
S = I + CA
▶ Any domestic savings not absorbed by domestic investment must be shipped outside the
country in the form of goods and services.
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Flow Vs Stock

▶ Flow: Rate per unit time

▶ Stock: Quantity in existence of some object at a point in time.

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Flow Vs Stock

▶ Y, C, I, G, NX - flows
▶ Quantity of housing - stock
▶ National saving - flow
▶ National wealth - stock
▶ National saving represents additions to the nation’s wealth.

MEASUREMENT 5/9
Wealth Accumulation

▶ Recall S = I + CA.
▶ Wealth is accumulated in two ways:
1 Through investment, which is additions to the nation’s capital stock.
Capital stock: quantity of plants, equipment, housing, and inventories in existence in an
economy at a point in time.
2 Through current account surpluses
A current account surplus implies that Indian residents are accumulating claims on foreigners
Represents increases in claims on foreigners, because if goods are flowing from India to other
countries, then these goods must be paid for with a transfer of wealth from outside India to
Indian residents.
Current account surplus - flow
Quantity of claims on foreigners in existence in India - stock.

MEASUREMENT 6/9
Labor Market Statistics

▶ We can classify participants in the labor market in three groups:

1 Employed: those who worked part-time or full-time during the past week
2 Unemployed: those who were not employed during the past week but actively searched for
work at some time during the last four weeks
3 Not in the labor force: those who are neither employed or unemployed.
▶ Thus, Labor Force = Employed + Unemployed

MEASUREMENT 7/9
Labor Market Statistics

1
Number unemployed
Unemployment rate =
Labor force
2
Labor force
Participation rate =
Total working age population
3
Total employment
Employment/Population ratio =
Total working age population

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Unemployment Rate
Unemployment rate is a useful economic measure for two reasons:
1 Helps determine the level of labor market tightness

Labor market tightness: captures the degree of difficulty firms face in hiring workers, and
the ease with which would-be workers can find a job.
Labor market tightness falls as the unemployment rate increases, everything else held
constant
A higher unemployment rate tends to make it easier for a firm to recruit workers, and reflects
greater difficulty for a would-be worker in finding a job
2 Can be used as an indirect measure of economic welfare

MEASUREMENT 9/9
Unemployment Rate
Unemployment rate is a useful economic measure for two reasons:
1 Helps determine the level of labor market tightness

Labor market tightness: captures the degree of difficulty firms face in hiring workers, and
the ease with which would-be workers can find a job.
Labor market tightness falls as the unemployment rate increases, everything else held
constant
A higher unemployment rate tends to make it easier for a firm to recruit workers, and reflects
greater difficulty for a would-be worker in finding a job
2 Can be used as an indirect measure of economic welfare
Gives us some information on the distribution of income across the population
A higher unemployment rate then tends to be associated with greater dispersion in incomes
across the population
Weakness:

MEASUREMENT 9/9
Unemployment Rate
Unemployment rate is a useful economic measure for two reasons:
1 Helps determine the level of labor market tightness

Labor market tightness: captures the degree of difficulty firms face in hiring workers, and
the ease with which would-be workers can find a job.
Labor market tightness falls as the unemployment rate increases, everything else held
constant
A higher unemployment rate tends to make it easier for a firm to recruit workers, and reflects
greater difficulty for a would-be worker in finding a job
2 Can be used as an indirect measure of economic welfare
Gives us some information on the distribution of income across the population
A higher unemployment rate then tends to be associated with greater dispersion in incomes
across the population
Weakness:
1 Does not adjust for how intensively the unemployed are searching for work
2 Does not include the marginally attached (workers who are not actively searching, but who
would accept a job if offered one)

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