Principles of Principles of National National Accounting Accounting Presented by: Presented by: Gurnain Kaur Pasricha Gurnain Kaur Pasricha Sept 8, 2006 Sept 8, 2006
Mar 26, 2015
Principles of Principles of National AccountingNational Accounting
Presented by:Presented by:
Gurnain Kaur PasrichaGurnain Kaur Pasricha
Sept 8, 2006Sept 8, 2006
OverviewOverview National Income Accounting National Income Accounting
Relationships/Identities:Relationships/Identities:1.1. Three measures of GDP.Three measures of GDP.2.2. Domestic and National ProductDomestic and National Product3.3. Domestic/National Product and Disposable Domestic/National Product and Disposable
IncomeIncome4.4. Savings-Investment Gap and the Current Savings-Investment Gap and the Current
AccountAccount5.5. Current Account Balance and Net Current Account Balance and Net
Lending/BorrowingLending/Borrowing6.6. Measures of Government Deficit.Measures of Government Deficit.
Real vs. Nominal MeasuresReal vs. Nominal Measures
Gross Domestic Product Gross Domestic Product GDPGDP
A commonly used measure of standard A commonly used measure of standard of living. (Other measures: GNI, GNDI all of living. (Other measures: GNI, GNDI all in ‘real terms’)in ‘real terms’)
Market valueMarket value of of finalfinal goods and services goods and services produced in the produced in the territoryterritory of an economy, of an economy, in a given time periodin a given time period. .
‘‘Final goods and services’ : Those that are Final goods and services’ : Those that are available for final uses in the given time available for final uses in the given time period. period. Final uses: Consumption, capital formation and exportFinal uses: Consumption, capital formation and export
‘‘Territory’: includes territorial waters, Territory’: includes territorial waters, embassies and missions abroad.embassies and missions abroad.
Circular Flow of IncomeCircular Flow of Income
Households Producers
Factor Services
Factor Payments ( I )
Payments for Goods & Services (E)
Goods & Services (O)
G&S
I. Expenditure ApproachI. Expenditure Approach
GDP = Final Consumption Expenditure of GDP = Final Consumption Expenditure of households (C households (Chh))
+ Final Consumption Expenditure + Final Consumption Expenditure of of General Government (C General Government (Cgg))
+ Final Consumption Expenditure + Final Consumption Expenditure of of NPISH (C NPISH (Cnn))
+ Gross Capital Formation ( I )+ Gross Capital Formation ( I )
+ Exports – Imports (NX = X - M)+ Exports – Imports (NX = X - M)
I.I Final Consumption Expenditure I.I Final Consumption Expenditure of Householdsof Households
Includes consumption of all Includes consumption of all durabledurable and and non-durable goods except own non-durable goods except own construction or improvement of residential construction or improvement of residential housinghousing
Services of owner occupied dwellings Services of owner occupied dwellings counted through imputed rentcounted through imputed rent
Estimated using retail trade and household Estimated using retail trade and household surveys for non-census years.surveys for non-census years.
I.II FCE of General GovernmentI.II FCE of General Government
General Government:General Government:• Central governmentCentral government• State governmentsState governments• Local governmentsLocal governments• Social security fundsSocial security funds• Non-Profit Institutions serving the government Non-Profit Institutions serving the government
Excluded: Government agencies that can charge Excluded: Government agencies that can charge market prices or prices that cover over 50 % of market prices or prices that cover over 50 % of their costs.their costs.
I.II FCE of General GovernmentI.II FCE of General Government
Output of the General GovernmentOutput of the General Government= Current Expenditures on goods and services = Current Expenditures on goods and services
to produce government servicesto produce government services
+ Compensation of employees+ Compensation of employees
+ Consumption of Fixed capital+ Consumption of Fixed capital
+ Own major construction+ Own major construction
+ Own major repairs+ Own major repairs = Own-account capital formation
I.II FCE of General GovernmentI.II FCE of General Government
= Output = Output
lessless Sales to households and corporations Sales to households and corporations
lessless Own-account Capital Formation Own-account Capital Formation
plusplus Social Benefits in kind Social Benefits in kind
( g & s provided free)( g & s provided free)
Excluded: Excluded:
Interest payments, Social benefits in cash.Interest payments, Social benefits in cash.
I.III FCE of Non-Profit Institutions I.III FCE of Non-Profit Institutions Serving HouseholdsServing Households
Non-market output other than own account Non-market output other than own account capital formation capital formation
= Production Costs – Incidental Sales= Production Costs – Incidental Sales
Expenditure on market goods and services Expenditure on market goods and services supplied without transformation and free of supplied without transformation and free of charge.charge.
I.IV Gross Capital FormationI.IV Gross Capital Formation
= Gross Fixed Capital Formation= Gross Fixed Capital Formation
Additions to produced capital goods and Additions to produced capital goods and improvements to non-produced assets (e.g.. Land)improvements to non-produced assets (e.g.. Land)
+ Change in Inventories+ Change in Inventories
+ Acquisition less disposals of valuables + Acquisition less disposals of valuables
I.V Net ExportsI.V Net Exports
Exports and Imports are transactions Exports and Imports are transactions involving an exchange of goods and involving an exchange of goods and services between services between residentsresidents and and non-non-residentsresidents of an economy. of an economy.
Exclude transactions in non-movable non-Exclude transactions in non-movable non-produced assets (e.g. Land), buildings and produced assets (e.g. Land), buildings and in financial assets.in financial assets.
Residents vs. Non-ResidentsResidents vs. Non-Residents
A resident of an economy is an economic agent A resident of an economy is an economic agent whose center of economic interest is in the whose center of economic interest is in the economy in question. economy in question. Center of interest identified by Center of interest identified by
• length of stay – usually a year or more.length of stay – usually a year or more.• Ownership of land or structures Ownership of land or structures
Treatment of :Treatment of : Students Students International organizations International organizations Military personnel and civil servantsMilitary personnel and civil servants
I. Expenditure ApproachI. Expenditure Approach
GDP = Final Consumption Expenditure of GDP = Final Consumption Expenditure of households (C households (Chh))
+ Final Consumption Expenditure + Final Consumption Expenditure of of General Government (C General Government (Cgg))
+ Final Consumption Expenditure + Final Consumption Expenditure of of NPISH (C NPISH (Cnn))
+ Gross Capital Formation (GCF)+ Gross Capital Formation (GCF)
+ Exports – Imports (NX = X - M)+ Exports – Imports (NX = X - M)
II. Output ApproachII. Output Approach
GDP = OutputGDP = Output lessless Intermediate Intermediate
ConsumptionConsumption plusplus Net Indirect Taxes Net Indirect Taxes
Net Indirect Taxes Net Indirect Taxes = Taxes on goods and services= Taxes on goods and services
less less SubsidiesSubsidies
= Gross Value Added
II.I Output ApproachII.I Output Approach
‘‘Output’ Includes:Output’ Includes: Services of Owner Services of Owner
occupied housingoccupied housing Services of paid domestic Services of paid domestic
staffstaff Agricultural production for Agricultural production for
sale or own consumptionsale or own consumption Illegal and hidden goodsIllegal and hidden goods Own account development Own account development
of software*of software* Natural growth of cultivated Natural growth of cultivated
forestsforests
‘‘Output’ Excludes: Output’ Excludes: Waste and losses in Waste and losses in
production production Transfer payments Transfer payments
(eg. Birthday presents, (eg. Birthday presents, social security payments)social security payments)
Goods and services Goods and services produced in the household produced in the household for own consumption for own consumption
III. Income ApproachIII. Income Approach
GDP = Primary incomes generated in the GDP = Primary incomes generated in the domestic economydomestic economy
= Compensation of Employees= Compensation of Employees
+ Other taxes less subsidies on + Other taxes less subsidies on productionproduction
+ Consumption of fixed capital+ Consumption of fixed capital
+ Net Operating Surplus+ Net Operating Surplus
+ Net Indirect Taxes+ Net Indirect Taxes
Gross
Value
Added
GDP by Income ApproachGDP by Income Approach
= GVA + NIT= GVA + NIT
= Output – Intermediate = Output – Intermediate Consumption Consumption + NIT+ NIT
= GDP by Output Approach= GDP by Output Approach
Total Supply Total Supply
= Output= Output
- Intermediate - Intermediate ConsumptionConsumption
+ NIT+ NIT
+ Imports+ Imports
Total Uses Total Uses
= Final Consumption= Final Consumption
+ Gross Capital + Gross Capital FormationFormation
+ Exports+ Exports
=> GDP by Output Approach = GDP by Expenditure Approach
GDP to GNIGDP to GNI
GNI = Value of final goods and services GNI = Value of final goods and services produced by residents of the economyproduced by residents of the economy
= GDP = GDP
+ Primary Income receivable by + Primary Income receivable by residents from abroad residents from abroad
- Primary income payable to non- - Primary income payable to non- residents residents
NFIA
Gross National Disposable Income (GNDI)Gross National Disposable Income (GNDI)
= GNI= GNI
+ Current Transfers from ROW+ Current Transfers from ROW
- Current Transfers to ROW- Current Transfers to ROWNet Current
Transfers
Top Recipients of Net Income from Abroad, 2004
LSO
MDAKWT
CHEBIH
CHL BLZ YEMAGO LUX
IRL-20-15-10
-505
1015
202530
Per
cen
tage
of
GD
P
Data Source: WDI / GDF Central
Net Current Transfers as Percentage of GDP, 2004
JOR
BIH GHA LSO NPL
SAU MDV OMN LBYBHR-15
-10
-5
0
5
10
15
20
25
30
Per
cen
tage
of
GD
P
Data Source: WDI / GDF Central
Net Workers' Remittances as Percentage of GDP, 2004
JOR HND BIHJAM
NPL
KAZ LBYKWT SWZ SAU
-10
-5
0
5
10
15
20
Pe
rce
nta
ge
of
GD
P
Data Source: WDI / GDF Central
The Current AccountThe Current Account
CAB = Trade Balance (NX)CAB = Trade Balance (NX)
+ NFIA+ NFIA
+ Net Current Transfers from ROW+ Net Current Transfers from ROW
Current Account Balance, USCurrent Account Balance, US
Source: BEA
Saving-Investment Gap Saving-Investment Gap and the Current Accountand the Current AccountGNDI GNDI ≡≡ Gross Savings Gross Savings
+ Final Consumption+ Final Consumption C + I + NX C + I + NX
+ NFIA + NFIA
+ Net Current Transfers+ Net Current Transfers ≡≡ S + C S + C
I + CAB I + CAB ≡≡ S S
CAB CAB ≡≡ S - IS - I
Capital AccountCapital Account
UsesUses
Gross Capital FormationGross Capital Formation
Net acquisition of non-Net acquisition of non-financial, non-produced financial, non-produced assets from ROWassets from ROW
Net Lending (+) Net Lending (+)
or Net Borrowing (-) from or Net Borrowing (-) from ROW (∆NFA )ROW (∆NFA )
ResourcesResources
Gross SavingGross Saving
Net Capital TransfersNet Capital Transfers
Financial AccountFinancial Account
Change in Financial Change in Financial AssetsAssets
Change in Financial Change in Financial LiabilitiesLiabilities
Net Lending (+)Net Lending (+)
Or Net Borrowing (-)Or Net Borrowing (-)
((∆NFA)∆NFA)
Government FinancesGovernment Finances
RevenueRevenue TaxesTaxes Social ContributionsSocial Contributions Other RevenueOther Revenue
(Includes Sales, Central (Includes Sales, Central Bank Profits)Bank Profits)
GrantsGrants
Expenditure & Net LendingExpenditure & Net LendingCurrent:Current:
Wages and SalariesWages and Salaries Goods and ServicesGoods and Services Consumption of Fixed CapitalConsumption of Fixed Capital SubsidiesSubsidies Social BenefitsSocial Benefits Interest PaymentsInterest Payments Other ExpenseOther Expense GrantsGrants
CapitalCapital
Net Lending(+)/Borrowing(-) Net Lending(+)/Borrowing(-) (Fiscal Balance)(Fiscal Balance)
Government FinancesGovernment Finances
Fiscal Deficit = Total government outlays Fiscal Deficit = Total government outlays
( G + iD )( G + iD )
- Revenue (T)- Revenue (T)
= Primary Deficit (G - T)= Primary Deficit (G - T)
+ Interest Payments ( iD )+ Interest Payments ( iD )
= Net borrowing (= Net borrowing (∆D)∆D)
Government FinancesGovernment Finances
GDP
Dgi
GDP
TG
GDP
D
TiDGD
)(
For ratio of govt. debt to GDP to be constant, Primary Surplus = (i - g) D/GDP
Government Finances Government Finances & Current Account& Current Account
CAB = S – I CAB = S – I
= S= Spp + S + Sgg – I – Ipp – I – Igg
= S= Spp – I – Ipp + S + Sgg – I – Igg
= S= Spp – I – Ipp + + Fiscal BalanceFiscal Balance
If SIf Spp = I = Ipp, then, then
CAB = Fiscal BalanceCAB = Fiscal Balance
Real vs. NominalReal vs. Nominal Nominal GDP:Nominal GDP:
Real GDP:Real GDP:
GDP Deflator:GDP Deflator:
ttt QPGDP *
tst QPRGDP *
t
tt RGDP
GDPDeflator
Comparison across countriesComparison across countries Conversion using market exchange ratesConversion using market exchange rates PPP: An exchange rate between currencies that PPP: An exchange rate between currencies that
equalizes their purchasing power.equalizes their purchasing power. Eg: A Liter of Pepsi costs $2 in US and Eg: A Liter of Pepsi costs $2 in US and €€2.5 in 2.5 in
Germany, then the PPP exchange rate for Pepsi is Germany, then the PPP exchange rate for Pepsi is €1.25/$. €1.25/$.
PPP for product groups computed as geometric PPP for product groups computed as geometric average of within-group price relativesaverage of within-group price relatives
Aggregated using expenditure weights for product Aggregated using expenditure weights for product groups in GDP.groups in GDP.
Rankings of Economic Size, 2004
Country PPP Rank US$ Rank
United States 1 1
Japan 3 2
Germany 5 3
United Kingdom 6 4
France 7 5
China 2 6
Italy 8 7
Spain 11 8
Canada 13 9
India 4 10
Korea, Rep. 14 11
Mexico 12 12
Australia 16 13
Brazil 9 14
Russian Federation 10 15
Netherlands 18 16
Switzerland 36 17
Belgium 28 18
Sweden 31 19
Turkey 17 20
Relative Living Standards, 2004
Rankings of per capita GDPs
Country Name PPP Rank US$ Rank
Luxembourg 1 1
Norway 4 2
Switzerland 6 3
Denmark 8 4
Ireland 3 5
Iceland 5 6
United States 2 7
Sweden 16 8
Japan 18 9
United Kingdom 13 13
France 17 14
Belgium 11 15
Germany 19 16
Canada 10 18
Italy 20 19
Turkey 64 58
Venezuela, RB 81 59
Russian Federation 53 61
Argentina 41 62
Belize 73 63
Uruguay 56 64
India 106 119
““The wisest mind has something yet to The wisest mind has something yet to learn.”learn.”
George Santayana George Santayana (1863 - 1952)(1863 - 1952)