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Principles of National Accounting. Presented by: Gurnain Kaur Pasricha Sept 8, 2006. Overview. National Income Accounting Relationships/Identities: Three measures of GDP. Domestic and National Product Domestic/National Product and Disposable Income

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Principles of national accounting

Principles of National Accounting

Presented by:

Gurnain Kaur Pasricha

Sept 8, 2006


Overview
Overview

  • National Income Accounting Relationships/Identities:

    • 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
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.



Circular flow of income
Circular Flow of Income for final uses in the given time period.

Factor Payments ( I )

Factor Services

Producers

Households

G&S

Goods & Services (O)

Payments for Goods & Services (E)


I expenditure approach
I. Expenditure Approach for final uses in the given time period.

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
I.I Final Consumption Expenditure of Households for final uses in the given time period.

  • 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
I.II FCE of General Government for final uses in the given time period.

  • 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 government1
I.II FCE of General Government for final uses in the given time period.

  • 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 major repairs

= Own-account capital formation


I ii fce of general government2
I.II FCE of General Government for final uses in the given time period.


I iii fce of non profit institutions serving households
I.III FCE of Non-Profit Institutions Serving Households for final uses in the given time period.

  • 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
I.IV Gross Capital Formation for final uses in the given time period.

= 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
I.V Net Exports for final uses in the given time period.

  • Exports and Imports are transactions involving an exchange of goods and services between residents and non-residents of an economy.

  • Exclude transactions in non-movable non-produced assets (e.g. Land), buildings and in financial assets.


Residents vs non residents
Residents vs. Non-Residents for final uses in the given time period.

  • 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 approach1
I. Expenditure Approach for final uses in the given time period.

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
II. Output Approach for final uses in the given time period.

  • GDP = Output

    less Intermediate

    Consumption

    plus Net Indirect Taxes

  • Net Indirect Taxes

    = Taxes on goods and services

    less Subsidies

= Gross Value Added


Ii i output approach

‘Output’ Includes: for final uses in the given time period.

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

II.I Output Approach


Iii income approach
III. Income Approach for final uses in the given time period.

GDP = Primary incomes generated in the domestic economy

= Compensation of Employees

+ Other taxes less subsidies on production

+ Consumption of fixed capital

+ Net Operating Surplus

+ Net Indirect Taxes

Gross

Value

Added


GDP by Income Approach for final uses in the given time period.

= GVA + NIT

= Output – Intermediate Consumption + NIT

= GDP by Output Approach


Total Supply for final uses in the given time period.

= Output

- Intermediate Consumption

+ NIT

+ Imports

Total Uses

= Final Consumption

+ Gross Capital Formation

+ Exports

=> GDP by Output Approach = GDP by Expenditure Approach


Gdp to gni
GDP to GNI for final uses in the given time period.

GNI = Value of final goods and services produced by residents of the economy

= GDP

+ Primary Income receivable by residents from abroad

- Primary income payable to non- residents

NFIA


Gross National Disposable Income (GNDI) for final uses in the given time period.

= GNI

+ Current Transfers from ROW

- Current Transfers to ROW

Net Current

Transfers


Data Source: WDI / GDF Central for final uses in the given time period.


Data Source: WDI / GDF Central for final uses in the given time period.


Data Source: WDI / GDF Central for final uses in the given time period.


The current account
The Current Account for final uses in the given time period.

CAB = Trade Balance (NX)

+ NFIA

+ Net Current Transfers from ROW


Current account balance us
Current Account Balance, US for final uses in the given time period.

Source: BEA


Saving investment gap and the current account
Saving-Investment Gap for final uses in the given time period. and the Current Account

GNDI ≡ Gross Savings

+ Final Consumption

  • C + I + NX

    + NFIA

    + Net Current Transfers ≡ S + C

  • I + CAB ≡ S

  • CAB ≡ S - I


Capital account

Uses for final uses in the given time period.

Gross Capital Formation

Net acquisition of non-financial, non-produced assets from ROW

Net Lending (+)

or Net Borrowing (-) from ROW (∆NFA )

Resources

Gross Saving

Net Capital Transfers

Capital Account


Financial account

Change in Financial Assets for final uses in the given time period.

Change in Financial Liabilities

Net Lending (+)

Or Net Borrowing (-)

(∆NFA)

Financial Account


Government finances

Revenue for final uses in the given time period.

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


Government finances1
Government Finances for final uses in the given time period.

Fiscal Deficit = Total government outlays

( G + iD )

- Revenue (T)

= Primary Deficit (G - T)

+ Interest Payments ( iD )

= Net borrowing (∆D)


Government finances2
Government Finances for final uses in the given time period.

For ratio of govt. debt to GDP to be constant,

Primary Surplus = (i - g) D/GDP


Government finances current account
Government Finances for final uses in the given time period. & Current Account

CAB = S – I

= Sp + Sg – Ip – Ig

= Sp – Ip + Sg – Ig

= Sp – Ip +Fiscal Balance

If Sp = Ip, then

CAB = Fiscal Balance


Real vs nominal
Real vs. Nominal for final uses in the given time period.

  • Nominal GDP:

  • Real GDP:

  • GDP Deflator:


Comparison across countries
Comparison across countries for final uses in the given time period.

  • 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.


The wisest mind has something yet to learn george santayana 1863 1952
“The wisest mind has something yet to learn.” for final uses in the given time period. George Santayana (1863 - 1952)


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