2. Overview
National Income Accounting
Relationships/Identities:
1. Three measures of GDP.
2. Domestic and National Product
3. Domestic/National Product and Disposable Income
4. Savings-Investment Gap and the Current Account
5. Current Account Balance and Net Lending/Borrowing
6. Measures of Government Deficit.
Real vs. Nominal Measures
3. 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.
4. ‘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.
5. Circular Flow of Income
Households Producers
Factor Services
Factor Payments ( I )
Payments for Goods & Services (E)
Goods & Services (O)
G&S
6. 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)
7. 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.
8. 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.
9. 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 major repairs
= Own-account capital formation
10. 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.
11. 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.
12. 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
13. I.V Net Exports
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.
14. 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
15. 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)
16. II. Output Approach
GDP = Output
less Intermediate
Consumption
plus Net Indirect Taxes
Net Indirect Taxes
= Taxes on goods and services
less Subsidies
= Gross Value Added
17. 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
18. III. Income Approach
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
19. GDP by Income Approach
= GVA + NIT
= Output – Intermediate Consumption
+ NIT
= GDP by Output Approach
20. Total Supply
= Output
- Intermediate
Consumption
+ NIT
+ Imports
Total Uses
= Final Consumption
+ Gross Capital
Formation
+ Exports
=> GDP by Output Approach = GDP by Expenditure Approach
21. GDP to GNI
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
22. Gross National Disposable Income (GNDI)
= GNI
+ Current Transfers from ROW
- Current Transfers to ROW
Net Current
Transfers
