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National Income Accounts: Overview and Applications

National Income Accounts: Overview and Applications. Thorvaldur Gylfason. The meaning of GNP. Y + Z = C + I + G + X Aggregate supply = aggregate demand Y = C + I + G + X – Z (expenditure) where C = C d + C z , I = I d + I z , etc. Y = C d + I d + G d + X d Y = C + S + T (allocation)

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National Income Accounts: Overview and Applications

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  1. National Income Accounts: Overview and Applications Thorvaldur Gylfason

  2. The meaning of GNP • Y + Z = C + I + G + X • Aggregate supply = aggregate demand • Y = C + I + G + X – Z (expenditure) • where C = Cd + Cz, I = Id + Iz, etc. • Y = Cd + Id + Gd + Xd • Y = C + S + T (allocation) • Y = wages+ interest + rent (income) • Y = coffee + tea + ... (production) • Four equivalent definitions of GNP

  3. Saving and investment • I = S + (T – G) + (Z – X) = private + public + foreign saving • (I – S) + (G – T) = Z – X • Domestic deficit = foreign deficit • Example: U.S in 1980s • Related concepts • NNP • GDP • GDI • GNI

  4. Related concepts • NNP= GNP – depreciation • GNP = C + Ig + G + X – Z • NNP = C + In + G + X – Z • GNP – NNP = Ig – In = depreciation • Recall:I = K + K • GDP= GNP – FI • FI = wages + interest (net) earned abroad • GNP = GDP + FI • GNP is legal concept, GDP is geographical • Turkey: GNP > GDP; Argentina: GNP < GDP

  5. Related concepts • GDI= GNP + transfers = GDP + FI + TR

  6. Related concepts • GNI= GNP + terms of trade effect • GNP = E + X – Z • where E = C + I + G and X = XN/PX • GNI = E + X* - Z • where X* = XN/PZ • TT = GNI – GNP = X* - X = XN/PZ - XN/PX = (XN/PX)(PX/PZ -1) • Px goes up  GNI goes up for given GNP • Pz goes up  GNI goes down for given GNP

  7. Why important? • Allows us to measure GNP • Domestic uses • International comparisons • Measuring growth

  8. Qualifications • Does not include nonmarket activity • Work at home • Does not distinguish between • rising vs. falling incomes • equal vs. unequal distribution • stocks vs. flows • environment • resources (natural and human) • right vs. wrong exchange rates • work vs. leisure

  9. Linkages • NIA: S – I = G – T + X – Z • BOP: R = X – Z + DF • GFS: G – T = B + DG + DF • MS: M =D + R = DG + DP + R

  10. Linkages • NIA: S – I = G – T + X – Z • BOP: R =X – Z+ DF • GFS: G – T = B + DG + DF • MS: M =D + R = DG + DP + R

  11. Linkages • NIA: S – I =G – T+ X – Z • BOP: R = X – Z + DF • GFS:G – T= B + DG + DF • MS: M = D + R = DG + DP + R

  12. Linkages • NIA: S – I = G – T + X – Z • BOP:R= X – Z + DF • GFS: G – T = B + DG + DF • MS:M =D +R= DG + DP +R

  13. Linkages • NIA: S – I = G – T + X – Z • BOP: R = X – Z +DF • GFS: G – T = B + DG +DF • MS:M =D + R = DG + DP + R

  14. Linkages • NIA: S – I = G – T + X – Z • BOP: R = X – Z + DF • GFS: G – T = B + DG+ DF • MS: M =D + R =DG+ DP + R

  15. Application • GFS: G – T = B + DG + DF • NIA: I – S = DP - M - B • G – T + I – S = D + DF - M = DF - R = X – Z • Therefore, R = X – Z + DF = X – Z + F We can use NIA and GFS to derive BOP

  16. Growth accounting • Y = ALaK1-a • where A = E(K/L)a • Y = EK • Y/Y = A/A + a(L/L) + (1-a)(K/K) • Y/Y = q + a(L/L) + (1-a)(sY/K - ) • g = q + (2/3)0.015 + (1/3)((0.21(1/3) – 0.04) = q + 0.01 + 0.01 • g = 0.03  q = 0.01 • So, US growth can be traced to labor, capital, and technology in roughly equal proportions Recall:I = K + K

  17. Growth accounting • g = sE - 

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