Ecological Economics Lecture 06 05th May 2011 [email protected] Rui Mota and Tiago Domingos Environment and Energy Section Department of Mechanical Engineering.

Ecological EconomicsLecture 06

05th May 2011

[email protected]

Rui Mota and Tiago DomingosEnvironment and Energy Section

Department of Mechanical Engineering

National Accounting: Keywords

• Flow of income in the economy

• GDP

• Savings

• Net vs Gross

• Domestic vs National

• CPI

• Inflation

• Real vs Nominal Aggregates

National Accounts

• The System of National Accounts is a comprehensive accounting framework within which economic data can be compiled and presented in a format that is designed for purposes of economic analysis, decision-taking and policy-making.

• Integrates a set of macroeconomic accounts, balance sheets and tables based on a set of internationally agreed concepts, definitions, classifications and accounting rules.

• Accounts compiled for a succession of time periods, thus providing a continuing flow of information, indispensable for the monitoring, analysis and evaluation of the performance of an economy over time.

Aggregation

• 5 Sectors:

–Households–Firms–Financial Intermediaries (banks, …)–Governments (national and local)–Rest Of the World (ROW)

• 4 Markets (Supply and Demand):

–Goods and services–Resources (labor, land and capital)–Money (loanable funds)–Foreign exchange

Circular flow of income

• Factors: Labor, Land, Capital• Factor payments: Wage, Rents, Interests, Profits – become income.• Expenditures: on goods and services (output)• 1 – Income approach: Y = Wage + Rent + interest + operating surplus• 2 – Output approach: Y = market value of all produced output (Σ VA)• 3 – Expenditure approach: Y = C

Households

Firms

OutputFactorsFactor payments: Y

Expenditures: C

1 2 3

€€

Circular flow of income

• Balance to:

– Households: Y - Tnet = C + S, Tnet = T- Tr

– Firms: Y = C + I + G + X - M

– Government: ΔGov = Tnet - G

– FI: S + ΔGov + B - L = I

– ROW: X - M = L - B

Households

Firms

C

FIS

I

Gov.

Y

T

Tr

G

ROW

X

M

ΔGov

BorrowLend

- Market for outputs

National Accounts Identity

CIXM

Main Aggregates

National(Residence)

- Primary income - Primary income flows to ROWflows to ROW

Product / Income

+ Primary income + Primary income flows from ROWflows from ROW

Domestic(Territory)

Net

+ Consumption + Consumption Fixed Capital Fixed Capital (CFC)(CFC)

Aggregate X - Consumption of - Consumption of Fixed Capital (CFC)Fixed Capital (CFC)

Gross

X – Domestic produc, Income, Saving, Disposable income, ...

• GNI = GDP + Y’RM . Where Y’RM = Net income payable to non-resident units for production factors.

Domestic Product vs. National Income

0

20

40

60

80

100

120

140

160

180

1960 1965 1970 1975 1980 1985 1990 1995 2000 2005

Mil

liard

s e

uro

s

PT Domestic

Ireland Domestic

PT National

Ireland National

Source: AMECO database

• The value added of a firm owned by Portuguese residents and functioning on our economic territory is part of the Portuguese GDP and GNI.

• The wage (or other factor payments) of a resident that during 6 months worked to a firm in Spain is a part of Spanish GDP and Portuguese GNI.

• The operating surplus (profits) – capital remuneration of a firm located in Portugal but owned by Germans – sent to Germany, is part of the Portuguese GDP and the German GNI.

• The income earned by Portuguese emigrants working abroad as residents is not part of the Portuguese GDP and GNI.

Domestic Product vs. National Income

Main Aggregates

Gross Domestic ProductGross Domestic Product (GDP)

+ Net primary income flows to ROW

= Gross National Income (GNI)= Gross National Income (GNI)

+ Current net transfers from ROW

= Gross National Disposable Income= Gross National Disposable Income

- Final consumption (Private and Government)

= Gross Saving (S)= Gross Saving (S)

Net Domestic Product (NDP)

= Net National Income (NNI)= Net National Income (NNI)

= Net National Disposable Income= Net National Disposable Income

= Net Saving (NS)= Net Saving (NS)

Subtract CFC

Gross Product vs. Net Product [Million euros 2000]

Source: AMECO database

0

20000

40000

60000

80000

100000

120000

140000

160000

1990 1995 2000 2005

Mil

lio

n e

uro

s

GDP

NDP

Gross Product per person employed [euros 2000]

Source: AMECO database

Gross Product per hours worked [euros 2000]

Source: AMECO database

Net Saving in Portugal [Mrd euros 2000]

Source: AMECO database

• Net savings are negative when consumption is higher than net disposable income

National Disposable Income [Mrd euros 2000]

Source: AMECO database

• Net resources that the total economy makes available to the rest of the world (if it is positive) or receives from the rest of the world (if it is negative).

Net Lending/Borrowing [% of GDP]

Source: AMECO database