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    Session 6 National Income Accounting

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    Allan
    National income accounting is a system used by governments to measure economic activity over a period of time, usually a year. It records data on corporate revenues, wages, taxes paid. This helps design policies, make international comparisons, and track welfare changes. However, not all economic activity is captured, so measurements like GDP may not fully reflect the real economy. GDP is the total value of final goods and services produced domestically in a given period. [END SUMMARY]

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    Session 6 National Income Accounting

    Uploaded by

    Allan
    47 views27 pages
    National income accounting is a system used by governments to measure economic activity over a period of time, usually a year. It records data on corporate revenues, wages, taxes paid. This helps design policies, make international comparisons, and track welfare changes. However, not all economic activity is captured, so measurements like GDP may not fully reflect the real economy. GDP is the total value of final goods and services produced domestically in a given period. [END SUMMARY]

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    National income accounting is a system used by governments to measure economic activity over a period of time, usually a year. It records data on corporate revenues, wages, taxes paid. This helps design policies, make international comparisons, and track welfare changes. However, not all economic activity is captured, so measurements like GDP may not fully reflect the real economy. GDP is the total value of final goods and services produced domestically in a given period. [END SUMMARY]

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    © All Rights Reserved
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    47 views27 pages

    Session 6 National Income Accounting

    Uploaded by

    Allan
    National income accounting is a system used by governments to measure economic activity over a period of time, usually a year. It records data on corporate revenues, wages, taxes paid. This helps design policies, make international comparisons, and track welfare changes. However, not all economic activity is captured, so measurements like GDP may not fully reflect the real economy. GDP is the total value of final goods and services produced domestically in a given period. [END SUMMARY]

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    ALLAN R> ESPINELI, MTM

    National income accounting is a


    bookkeeping system that a government
    uses to measure the level of the country's
    economic activity in a given time period.
    Accounting records of this nature include
    data regarding total revenues earned by
    domestic corporations, wages paid to
    foreign and domestic workers, and the
    amount spent on sales and income taxes by
    corporations and individuals residing in the
    country.
    • National income statistics help to design
    government policies
    • Make international comparisons of well
    being
    • Track changes in a country's level of
    welfare
    The accuracy of analysis relating to national income
    accounting is only as accurate as the data collected.
    Failure to provide the data in a timely fashion can render
    it useless in regard to policy analysis and creation.
    Additionally, certain data points are not examined, such
    as the impact of the underground economy and illegal
    production. This means these activities are not reflected
    in the analysis even if their effect on the economy is
    strong. As a result, it can be argued that certain national
    accounts, such as GDP or the consumer price index (CPI)
    used to measure inflation do not accurately capture the
    real economic output of the economy.
    •Gross domestic product (GDP) is the
    market value of all final goods and services
    domestically-produced over a given period
    of time (usually one year)
    Nominal GDP is an assessment of economic production in an
    economy that includes current prices in its calculation. In other
    words, it doesn’t strip out inflation or the pace of rising prices, which
    can inflate the growth figure.

    All goods and services counted in nominal GDP are valued at the
    prices that those goods and services are actually sold for in that
    year. Nominal GDP is evaluated in either the local currency or U.S.
    dollars at currency market exchange rates to compare countries’
    GDPs in purely financial terms.

    Nominal GDP is used when comparing different quarters of output


    within the same year. When comparing the GDP of two or more
    years, real GDP is used. This is because, in effect, the removal of the
    influence of inflation allows the comparison of the different years to
    focus solely on volume.
    Nominal GDP is an assessment of economic production in an
    economy that includes current prices in its calculation. In other
    words, it doesn’t strip out inflation or the pace of rising prices, which
    can inflate the growth figure.

    All goods and services counted in nominal GDP are valued at the
    prices that those goods and services are actually sold for in that
    year. Nominal GDP is evaluated in either the local currency or U.S.
    dollars at currency market exchange rates to compare countries’
    GDPs in purely financial terms.

    Nominal GDP is used when comparing different quarters of output


    within the same year. When comparing the GDP of two or more
    years, real GDP is used. This is because, in effect, the removal of the
    influence of inflation allows the comparison of the different years to
    focus solely on volume.
    •Gross national product (GNP) is the market
    value of all final goods and services
    produced by domestically-owned factors of
    production over a given period of time
    (usually one year).It is the market value of
    all final goods and services produced inside
    and outside the country
    Gross National Income (GNI) is the total
    amount of money earned by a nation's
    people and businesses. It is used to
    measure and track a nation's wealth from
    year to year. The number includes the
    nation's gross domestic product (GDP) plus
    the income it receives from overseas
    sources
    Of the three measures, GNP is the least used,
    possibly because it might be deceptive. For
    instance, if a nation's wealthiest citizens
    routinely move their money offshore,
    counting that money would inflate the
    nation's apparent wealth.

    In fact, GNI may now be the most accurate


    reflection of national wealth given today's
    mobile population and global commerce.
    GDP is the total market value of all
    finished goods and services produced
    within a country in a set time period.
    GNI is the total income received by the
    country from its residents and
    businesses regardless of whether they
    are located in the country or abroad.
    GNP includes the income of all of a
    country's residents and businesses
    whether it flows back to the country or is
    spent abroad. It also adds subsidies and
    taxes from foreign sources.
    Market Value
    • How does one calculate the value of
    output?
    –How do you add apples and oranges?

    • GDP and GNP are calculated using


    market value
    –Goods are valued at their market price?
    •Positives:
    –Market prices reflect how much people are willing
    to pay for (and therefore how much they value)
    goods and services

    •Negatives:
    –Valuations can differ, markets for all products
    don’t exist (e.g. street lighting)
    • Final goods and services are goods and services
    used for final consumption

    • Intermediate goods are those goods which are


    produced by one firm and used in the production
    process by another firm
    –Intermediate goods are used up in the production
    process
    –E.g. a tire produced by Goodyear for GM
    • Intermediate goods
    •Transfer payments
    –Public
    –Private

    • Second hand sales


    • Only final goods and services are counted as part
    of GDP. Intermediate goods are not counted to
    avoid double counting

    • Double counting is when you include the same


    good or service more than once in your valuation of
    output
    •Suppose Goodyear sells GM tires for a car for Php
    500
    –Value of tires = Php 500
    –GM sells the car for =Php 12,500
    –Value of car + tires =Php 13,000
    –But the value of tires have been counted twice,
    since their value is reflected in the sale price of the
    car
    •The value added is
    –the difference between the value of a good as it
    leaves a stage of production and the cost of goods
    entering that stage of production
    –Value added = value of good - cost of
    intermediate goods

    •Economists sometimes sum up the value added at


    each stage of production to avoid double counting
    Domestically
    Produced vs.
    Produced by
    Domestically Owned
    •GDP counts output produced within in the
    Philippines
    –E.g. San Miguel factory in Cavite
    –Toyota in Laguna
    Flow Variables
    •GDP/GNP measures the value of output
    over a given period of time usually one
    year

    •Flow Variable
    –Measures a process that takes place
    over a period of time
    –GDP is a flow variable
    –Income is also a flow variable
    Only New Output Is
    Counted
    •Both GDP/GNP are flow variables therefore
    output produced over a given period is
    counted as part of GDP/GNP

    •This implies that only new output, or output


    produced over the period of consideration, is
    counted
    Measuring GDP
    • Expenditure approach
    –Add up all expenditures on final goods and
    services

    • Income approach
    –Add up all incomes received by factors of
    production

    • Every payment (expenditure) by a buyer is at


    the same time a receipt (income) for the seller

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