Macroeconomic indicators in the system of national accounts. Topic 2

1.

TOPIC 2. MACROECONOMIC
INDICATORS IN THE SYSTEM
OF NATIONAL ACCOUNTS
1. System of National Accounts (SNA) as a regulatory
framework for macroeconomic accounting.
2. Gross domestic product (GDP) and methods for its
measurement.
3. Definition of final, intermediate products and value
added in the calculation of GDP
4. Nominal and real GDP. Deflator GDP, prices index.

2.

1. System of National Accounts (SNA).
System of National Accounts (SNA) – is the internationally
agreed standard set of recommendations on how to compile
measures of economic activity.
The SNA describes a coherent, consistent and integrated set of
macroeconomic accounts in the context of a set of
internationally agreed concepts, definitions, classifications and
accounting rules.

3.

1. System of National Accounts (SNA).
It can be distinguished:
consolidated national accounts – are accounts drawn up to
reflect the affairs of a group of entities. For example, a ministry
or holding company with many different operating agencies
or subsidiary companies may prepare consolidated accounts
reflecting the affairs of the organisation as a whole, as well as
accounts for each operating agency/subsidiary.
national accounts by sector – refers to the whole economy (a
country, the European Union (EU)) as a sector. All institutional
units operating within an economy can be assigned to a
particular institutional sector.

4.

1. System of National Accounts (SNA).
The main methodological principles of the SNA:
Reflection of economic cycle in three aspects production, distribution and end use.
Grouping of economic units into sectors: entrepreneurial,
general government, households and non-profit sector
serving households.
Separation of the movement of products and resources
and the movement of income.
Separation of intermediate and final products.
Distinction of incomes and expenses for current (carried
out continuously), and capital (one-time expances).

5.

2. Gross domestic product (GDP) and methods of
its measurement
GDP measures the market value of final goods and
services produced in the economic territory of the
country for a certain period of time (as a rule, a year).
The term "gross" in the defined GDP means that when
calculating it, the consumption of fixed capital
(depreciation) is taken into account.

6.

2. Gross domestic product (GDP) and methods of
its measurement
Principles of GDP calculation:
Principle of income and expenditure equality – Income of one
firm is an expenditure of another firm, in such a way they
always should be equal.
Principle of non-consideration of income from non-production
operations –
Nonproduction transactions are of two types:
• purely financial transactions (Public transfer payments -the
social security payments, welfare payments ; Private transfer
payments - cash gifts given at Christmas time. ; Stock market
transactions - The buying and selling of stocks (and bonds))
• secondhand sales.

7.

2. Gross domestic product (GDP) and methods of
its measurement
Principles of GDP calculation:
The principle of inclusion in the assessment of income
not only market and explicit, but also non-market and
implicit income – We should assess the best usage of
capital available.
Principle of value added calculation – We can avoid
multiple counting by measuring and cumulating only
the value added at each stage.
Value added is the market value of a firm’s output
less the value of the inputs the firm has bought from
others.

8.

2. Gross domestic product (GDP) and methods of
its measurement
Methods of calculating GDP:
1. The method of output (by expenditure) - is calculated
as the amount of expenses of macro-economic entities
for the purchase of goods and services in a given year.
GDP exp = C + Ig + G + Xn

9.

2. Gross domestic product (GDP) and methods of
its measurement
1. C - consumption expenditures by households (only short-term)
2. Investment costs - Gross Private Domestic Investment (Ig)
Net investment = gross investment - depreciation
3. Government Purchases (G)
These expenditures have two components:
(1) expenditures for goods and services that government consumes
in providing public services and
(2) expenditures for publicly owned capital such as schools and
highways, which have long lifetimes.
4. Net Exports (Xn ) = exports (X) - imports (M).

10.

2. Gross domestic product (GDP) and methods of
its measurement
2. The earnings or allocations method (income method) - calculated as
the sum of cash income received from production during the year.
GDP inc = W+r+i+P+t+A
Compensation of Employees (Wages) - wages and salaries by business
and government to their employees.
Rents (r)consist of the income received by the households and
businesses that supply property resources.
Interest (i) consists of the money paid by private businesses to the
suppliers of loans used to purchase capital.
“Profits”(P) is broken into two accounts: proprietors’ income, which
consists of the net income of sole proprietorships, partnerships, and other
unincorporated businesses; and corporate profits. Corporate profits are
the earnings of corporations.

11.

2. Gross domestic product (GDP) and methods of
its measurement
National income accountants subdivide corporate profits into three
categories:
• Corporate income taxes These taxes are levied on corporations’
profits. They flow to the government.
• Dividends These are the part of after-tax profits that corporations
choose to pay out, or distribute, to their stockholders. They thus flow
to households—the ultimate owners of all corporations.
• Undistributed corporate profits Any after-tax profits that are not
distributed to shareholders are saved, or retained, by corporations to
be invested later in new plants and equipment.

12.

2. Gross domestic product (GDP) and methods of
its measurement
Taxes on Production and Imports - general sales taxes,
excise taxes, business property taxes, license fees, and
customs duties.
A – amortization or Depreciation of capital

13.

2. Gross domestic product (GDP) and methods of
its measurement

14.

2. Gross domestic product (GDP) and methods of
its measurement
3. The production method (value added) - is calculated
as the sum of value added created at all stages of the
production of goods and services during the year.
GDP= gross output – material expenditures +taxes on
products – subsidies (net taxes)

15.

2. Gross domestic product (GDP) and methods of
its measurement
OTHER GDP INDICATORS:
Gross domestic product is the basis for calculating other equally
important indicators of national production.
They include:
- Gross National Income (GNI)
- Gross National Disposable Income (GNDI)
- Net domestic product (NDP)
- Net national income (NNI)

16.

2. Gross domestic product (GDP) and methods of
its measurement
DISTINCTION BETWEEN GDP AND GNI INDICATORS
1) Qualitative: GDP measures the flow of final goods and services
produced by residents of the country;
GNI measures the flow of primary incomes received by
residents of the country.
2) Quantitative: GNI = GDP + Balance of net factor income from
abroad (NFI).
The balance of net incomes received from abroad is the
difference between the incomes of residents of this country
received from abroad and the income of non-residents paid
abroad from this country.

17.

2. Gross domestic product (GDP) and methods of
its measurement
GNI – is the total of all sources of private income (employee
compensation, rents, interest, proprietors’ income, and
corporate profits) plus government revenue from taxes on
production and imports.
Gross national disposable income may be derived from gross
national income by adding all current net transfers and net
taxes.
GNDI = GNI+ Net transfers from abroad (NTR)+net taxes (NT)

18.

2. Gross domestic product (GDP) and methods of
its measurement
Indicators of the domestic product and the national
product can be calculated on a gross and on a net
basis.
GDP and GNI less capital consumption are NDP (net
domestic product) and NNI (net national income).
NDP = GDP - consumption of fixed capital
(depreciation)
NNI = GNI - fixed capital (depreciation)

19.

3. Definition of final, intermediate products and
value added in the calculation of GDP
When measuring GDP it is important to avoid multiple
counting - a situation where the same operation can be
taken into account twice. For this purpose in the SNA there
are the following concepts:
intermediate goods are goods and services purchased for the
purpose of further production, processing or resale;
final goods - goods and services purchased for the purpose of
final consumption, not for further processing or resale;

20.

3. Definition of final, intermediate products and
value added in the calculation of GDP
added value of the enterprise is the cost of the products
manufactured by the company less the cost of intermediate
goods and services that were acquired by the enterprise and
used in the production process.
Added value = gross output - intermediate consumption

21.

3. Definition of final, intermediate products and
value added in the calculation of GDP
Intermediate consumption is the cost of consumed
goods and consumed market services during this
period for the production of other goods and
services.
Intermediate consumption includes the following
elements: material expenses; payment for intangible
services; travel expenses; other elements of
intermediate consumption.

22.

4.Nominal and real GDP. Deflator GDP, prices
index
To find out the dynamics of the general level of prices in the
economy, the Paasche index is used. The Paasche index,
calculated for a set of goods and services included in the
country's GDP, is called a GDP deflator.
pq
Iп
p q
1 1
, where p1 – current level of prices
0 1
p0 – level of prices in the previous year
q1 – quantity of goods produced in a current year

23.

4.Nominal and real GDP. Deflator GDP, prices
index
GDP deflator – measure of the level of prices of all new,
domestically produced, final goods and services in an
economy.
The GDP deflator is used to determine the difference between
nominal and real GDP.
A GDP based on the prices that prevailed when the output
was produced is called unadjusted GDP, or nominal GDP.
A GDP that has been deflated or inflated to reflect changes in
the price level is called adjusted GDP, or real GDP.

24.

4.Nominal and real GDP. Deflator GDP, prices
index
If the value of the price index is less than 1, then there
is an adjustment of the nominal GDP in the direction
of increase - inflation.
If the value of the price index is greater than 1, then
there is a correction of nominal GDP in the direction
of reduction - deflation.