4. The National Income and Product Accounts and the Flow of Funds Accounts 
The National Income and Product Accounts (NIPA) and the Flow of Funds Accounts (FFA) are more than just the places where much macroeconomic data come from. They help us organize our thoughts about the structure of the economy, and they provide the framework for constructing models of the economy. The exercises in this chapter are designed to get you acquainted with the two sets of accounts. 
4.1 National Income and Product Accounts 
4.1.1 Definitions By definition, GDP is equal to consumption
plus investment plus government spending plus exports minus imports. In
the US model there
are six sectors and a number of categories of consumption, investment,
and government
spending, which make the GDP definition and other definitions somewhat
more involved. It
will be useful to begin with the definition of total sales of the firm
sector, denoted X,
which is defined in equation 60. Equation 60 is: Experiment 4.1: The Components of X
By definition production minus sales is the change in inventories. This
definition is equation 63: Y is not total GDP; it is only the part of GDP produced by the firm
sector. Some
production also takes place in the financial and government sectors.
Equation 83 defines
real GDP as production in the firm, financial, and government sectors:
Experiment 4.2: Going from X to GDPR
4.1.2 Nominal versus Real GDP As any introductory economics textbook discusses, it is important to
distinguish
between nominal and real GDP. By definition, nominal GDP is equal to real
GDP times the
GDP price index. In the model, this relationship is equation 84, which is
used to
determine the GDP price index:
4.1.3 Federal Government Variables The NIPA are useful for examining the role that the government plays
in the
economy. Total expenditures of the federal government (EXPG) are defined
in equation 106,
and total receipts (RECG) are defined in equation 105: Experiment 4.3: The Federal Government Budget

4.2 The Flow of Funds Accounts 
We now turn to some equations that relate to the Flow of Funds
Accounts. There
are six sectors in the model, and there is an equation that defines the
financial saving
of each sector. The financial saving of the household sector (SH), for
example, is defined
in equation 65: 65. SH = YT + CCH  PCS*CS  PCN*CN  PCD*CD  PIH*IHH  PIK*IKH  TRHR  THG  SIHG + TRGH  THS  SIHS + TRSH + UB + INS  WLDF The financial saving of a sector is all the receipts of the sector minus all of its expenditures. If receipts are greater than expenditures, there is positive saving; otherwise the sector is running a deficit. There is also an equation
for
each sector that defines its budget constraint. If, for example, a
sector's financial
saving is positive, this must result in an increase in at least one of
its assets or a
decrease in at least one of its liabilities. The budget constraint of the
household sector
is equation 66 (remember that <> means "change in"): The same considerations apply to the other sectors of the model. The five other saving equations are 69 (firm sector), 72 (financial sector), 74 (foreign sector), 76 (federal government sector), and 78 (state and local government sector). Note that federal government saving (SG) is almost always negative because the federal government almost always runs a deficit. (The federal government surplus or deficit variable in the model is actually SGP, not SG, but for all intents and purposes SG and SGP are the same. There are minor accounting differences between the two variables.) Note also that the saving of the foreign sector (SR) is the negative of the U.S. balance of payments on current account. The five other budget constraint equations are 70 (firm sector), 73 (financial sector), 75 (foreign sector), 77 (federal government sector), and 79 (state and local government sector). Equation 77, the federal government budget constraint, was discussed in Section 2.5. An important constraint in the FFA is that the sum of the financial
saving
across sectors is zero. Someone's expenditure is someone else's receipt,
which is what
this constraint says. In the notation in the model the constraint is: Experiment 4.4: Saving Equations and Budget Constraints
The final constraint that will be discussed is the demand deposit
identity,
equation 71: Experiment 4.5: The Demand Deposit Identity
