Transcript Principles of National Accounting

Principles of
National Accounting
Presented by:
Gurnain Kaur Pasricha
Sept 8, 2006
Overview
National Income Accounting
Relationships/Identities:

1.
2.
3.
4.
5.
6.

Three measures of GDP.
Domestic and National Product
Domestic/National Product and Disposable Income
Savings-Investment Gap and the Current Account
Current Account Balance and Net
Lending/Borrowing
Measures of Government Deficit.
Real vs. Nominal Measures
Gross Domestic Product
GDP


A commonly used measure of standard of
living. (Other measures: GNI, GNDI all in ‘real
terms’)
Market value of final goods and services
produced in the territory of an economy, in a
given time period.
 ‘Final
goods and services’ : Those that are
available for final uses in the given time
period.

Final uses: Consumption, capital formation and export
 ‘Territory’:
includes territorial waters,
embassies and missions abroad.
Circular Flow of Income
Factor Payments ( I )
Factor Services
Households
Producers
G&S
Goods & Services (O)
Payments for Goods & Services (E)
I. Expenditure Approach
GDP = Final Consumption Expenditure of
households (Ch)
+ Final Consumption Expenditure of
General Government (Cg)
+ Final Consumption Expenditure of
NPISH (Cn)
+ Gross Capital Formation ( I )
+ Exports – Imports (NX = X - M)
I.I Final Consumption Expenditure
of Households
Includes consumption of all durable and
non-durable goods except own
construction or improvement of residential
housing
 Services of owner occupied dwellings
counted through imputed rent
 Estimated using retail trade and household
surveys for non-census years.

I.II FCE of General Government
 General
•
•
•
•
•
Government:
Central government
State governments
Local governments
Social security funds
Non-Profit Institutions serving the government
Excluded: Government agencies that can charge
market prices or prices that cover over 50 % of
their costs.
I.II FCE of General Government
 Output
of the General Government
= Current Expenditures on goods and services
to produce government services
+ Compensation of employees
+ Consumption of Fixed capital
+ Own major construction
= Own-account capital formation
+ Own major repairs
I.II FCE of General Government
= Output
less Sales to households and corporations
less Own-account Capital Formation
plus Social Benefits in kind
( g & s provided free)
Excluded:
Interest payments, Social benefits in cash.
I.III FCE of Non-Profit Institutions
Serving Households
 Non-market
output other than own account
capital formation
= Production Costs – Incidental Sales
 Expenditure
on market goods and services
supplied without transformation and free of
charge.
I.IV Gross Capital Formation
= Gross Fixed Capital Formation
Additions to produced capital goods and
improvements to non-produced assets (e.g.. Land)
+ Change in Inventories
+ Acquisition less disposals of valuables
I.V Net Exports
 Exports
and Imports are transactions
involving an exchange of goods and
services between residents and nonresidents of an economy.
 Exclude
transactions in non-movable nonproduced assets (e.g. Land), buildings and
in financial assets.
Residents vs. Non-Residents

A resident of an economy is an economic agent
whose center of economic interest is in the
economy in question.

Center of interest identified by
• length of stay – usually a year or more.
• Ownership of land or structures

Treatment of :



Students
International organizations
Military personnel and civil servants
I. Expenditure Approach
GDP = Final Consumption Expenditure of
households (Ch)
+ Final Consumption Expenditure of
General Government (Cg)
+ Final Consumption Expenditure of
NPISH (Cn)
+ Gross Capital Formation (GCF)
+ Exports – Imports (NX = X - M)
II. Output Approach
 GDP
= Output
less Intermediate
= Gross Value Added
Consumption
plus Net Indirect Taxes
 Net
Indirect Taxes
= Taxes on goods and services
less Subsidies
II.I Output Approach

‘Output’ Includes:






Services of Owner
occupied housing
Services of paid domestic
staff
Agricultural production for
sale or own consumption
Illegal and hidden goods
Own account development
of software*
Natural growth of cultivated
forests

‘Output’ Excludes:



Waste and losses in
production
Transfer payments
(eg. Birthday presents,
social security payments)
Goods and services
produced in the household
for own consumption
III. Income Approach
GDP = Primary incomes generated in the
domestic economy
= Compensation of Employees
Gross
+ Other taxes less subsidies on
production
Value
+ Consumption of fixed capital
Added
+ Net Operating Surplus
+ Net Indirect Taxes
GDP by Income Approach
= GVA + NIT
= Output – Intermediate Consumption
+ NIT
= GDP by Output Approach
Total Supply
= Output
- Intermediate
Consumption
+ NIT
+ Imports
Total Uses
= Final Consumption
+ Gross Capital
Formation
+ Exports
=> GDP by Output Approach = GDP by Expenditure Approach
GDP to GNI
GNI = Value of final goods and services
produced by residents of the economy
= GDP
+ Primary Income receivable by
residents from abroad
NFIA
- Primary income payable to nonresidents
Gross National Disposable Income (GNDI)
= GNI
+ Current Transfers from ROW Net Current
Transfers
- Current Transfers to ROW
Percentage of GDP
Top Recipients of Net Income from Abroad, 2004
30
25
20
15
10
5
0
-5
-10
-15
-20
LSO
MDA
KWT
CHE
Data Source: WDI / GDF Central
BIH
CHL
BLZ
YEM
AGO
LUX
IRL
Net Current Transfers as Percentage of GDP, 2004
30
Percentage of GDP
25
20
JOR
BIH
GHA
LSO
NPL
15
10
5
0
-5
-10
-15
Data Source: WDI / GDF Central
SAU
MDV
OMN
LBY
BHR
Net Workers' Remittances as Percentage of GDP, 2004
Percentage of GDP
20
15
JOR
HND
BIH
JAM
NPL
10
5
0
-5
-10
Data Source: WDI / GDF Central
KAZ
LBY
KWT
SWZ
SAU
The Current Account
CAB = Trade Balance (NX)
+ NFIA
+ Net Current Transfers from ROW
Current Account Balance, US
Source: BEA
Saving-Investment Gap
and the Current Account
GNDI

≡
C + I + NX
+ NFIA
+ Net Current Transfers ≡
Gross Savings
+ Final Consumption
S+C

I + CAB
≡
S

CAB
≡
S-I
Capital Account
Uses
Gross Capital Formation
Net acquisition of nonfinancial, non-produced
assets from ROW
Net Lending (+)
or Net Borrowing (-) from
ROW (∆NFA )
Resources
Gross Saving
Net Capital Transfers
Financial Account
Change in Financial
Assets
Change in Financial
Liabilities
Net Lending (+)
Or Net Borrowing (-)
(∆NFA)
Government Finances
Revenue




Taxes
Social Contributions
Other Revenue
(Includes Sales, Central
Bank Profits)
Grants
Expenditure & Net Lending
Current:








Wages and Salaries
Goods and Services
Consumption of Fixed Capital
Subsidies
Social Benefits
Interest Payments
Other Expense
Grants
Capital
Net Lending(+)/Borrowing(-)
(Fiscal Balance)
Government Finances
Fiscal Deficit
= Total government outlays
( G + iD )
- Revenue (T)
= Primary Deficit (G - T)
+ Interest Payments ( iD )
= Net borrowing (∆D)
Government Finances
D  G  iD  T
D
G T
D


 (i  g )
GDP
GDP
GDP
For ratio of govt. debt to GDP to be constant,
Primary Surplus = (i - g) D/GDP
Government Finances
& Current Account
CAB = S – I
= Sp + Sg – I p – I g
= Sp – I p + S g – I g
= Sp – Ip + Fiscal Balance
If Sp = Ip, then
CAB = Fiscal Balance
Real vs. Nominal

Nominal GDP:

Real GDP:

GDP Deflator:
GDPt  Pt * Qt
RGDPt  Ps *Q t
GDPt
Deflatort 
RGDPt
Comparison across countries

Conversion using market exchange rates
 PPP: An exchange rate between currencies that
equalizes their purchasing power.



Eg: A Liter of Pepsi costs $2 in US and €2.5 in
Germany, then the PPP exchange rate for Pepsi is
€1.25/$.
PPP for product groups computed as geometric
average of within-group price relatives
Aggregated using expenditure weights for product
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 learn.”
George Santayana
(1863 - 1952)