National Income Accounting

7 Key excerpts on "National Income Accounting"

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  Getting the Measure of Money: A Critical Assessment of UK Monetary Indicators

  A Critical Assessment of UK Monetary Indicators

  • Anthony J. Evans(Author)
  • 2018(Publication Date)
  • London Publishing Partnership

    (Publisher)

  111

  Figure 20 Multi-factor productivity, 1997–2014

  There are three alternative approaches: output, income and expenditure. One of the main differences between them is the speed of data compilation, since the output approach provides the first estimate. Crucially, it is based on the concept of ‘value added’, which focuses on the difference between gross output and intermediate consumption at each stage of production.112 The income approach (or GDI) measures the sum of income generated by various groups of producers (for example, corporations, employees, the self-employed). The expenditure approach measures the amount of money spent across all sectors of the economy (i.e. consumption, investment, government spending and net exports). National Income Accounting is a relatively new phenomenon and its emergence coincided with the command economy of wartime, because ‘planning for the war effort required information on production and spending by type of product and purchaser’ (Landefield et al. 2008: 195).

  Perhaps the biggest problem with National Income Accounting is the difficulty in finding a common unit to provide a basis for measurement. Using the cash value of an exchange glosses over the fact that (i) people only exchange when the marginal value is greater than the marginal cost, therefore the exchange price only provides a lower bound of value creation, not an estimate; and (ii) focusing on the monetary value is only a notional measure. The sole reason for engaging in indirect exchange (i.e. using money) is to buy goods and services in the future. Thus, money is merely a ‘loose joint’ that fails to provide a common unit to compare, for example, apples and pears. The classic critique stems from the originator of National Income Accounting, with Simon Kuznets famously stating that ‘the welfare of a nation [can] scarcely be inferred from a measure of national income’ (Kuznets 1934: 7). But we can split these limitations into two separate critiques.

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  International Money and Finance

  • Anthony J. Makin(Author)
  • 2016(Publication Date)
  • Routledge

    (Publisher)

  This chapter also examines macroeconomic variables, which are, by dimension, prices. Such measures include the overall price level itself, which conveys, in a single number, movements in millions of individual goods and services prices throughout the economy. The other key economy-wide prices are the exchange rate and the interest rate, which are determined on the monetary side of the economy.

  The national accounts

  An economy’s national and international accounts are based on the guidelines set out in the United Nations’ System of National Accounts, which unifies related sets of macroeconomic accounts, such as national income and expenditure, intersectoral flows of funds and the external accounts. Taken as a whole, the system of national accounts is designed to provide a detailed picture of macroeconomic activity, as well as a framework for applying economic theory.

  Economic production is the most basic fundamental measure in the national accounts. Production results from combining labour, physical capital and natural resources with given technology to deliver goods and services, the bulk of which are sold in private markets. Definitionally, gross domestic product (GDP) is the aggregate value of the output of factories, farms, mines, and the value of the many kinds of private and public sector services produced over a given time period.

  GDP is derived after subtracting goods and services used up in the final production of goods and services. Production generates a flow of income for those factors that are combined in the process. Hence, as income, GDP is broadly classified as being either paid to labour as a factor of production (as wages and salaries) or to capital and land (known as the gross operating surplus).

  In principle, GDP can therefore equivalently be measured as the value of total output, as the value of total income received by all factors of production, or as the value of aggregate spending on final goods and services.

  In practice, therefore, there are three ways of measuring GDP

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  Principles of Economics in a Nutshell

  • Lorenzo Garbo, Dorene Isenberg, Nicholas Reksten(Authors)
  • 2020(Publication Date)
  • Routledge

    (Publisher)

  size of the economy, and such measure is provided by two fundamental concepts of National Income Accounting you have probably already heard of a million times:

  Gross Domestic Product (GDP)

  : market value of all the final goods/services produced in a given period of time (usually the calendar year) within national borders.

  Gross National Product (GNP)

  : market value of all the final goods/services produced in a given period of time (usually the calendar year) by domestically owned factors of production.

  Note : domestic (the “D” in GD P) is linked to the concept of borders , and thus includes production by domestic and foreign firms within the borders of the country; and national (the “N” in GN P) is linked to the concept of nationality of factors of production, and thus includes production performed only by domestic firms, independently of whether such production occurs within or outside national borders.

  Two key parts of these definitions require careful examination:

  1. Final Goods and Services
  2. Market Value

  a. Final goods and services: the concept of

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  Introducing Race and Gender into Economics

  • Robin L Bartlett(Author)
  • 2002(Publication Date)
  • Routledge

    (Publisher)

  Instructors know that National Income Accounting is central to every other lesson the students face in economics and so feel compelled to include it in their classes, despite negative associations they may hold from their early introduction to the subject. In the effort to end the ordeal as soon as possible, they often fail to consider the implications of relaxing the assumptions of the standard method, or broadening the definition of “income.” An important first step in teaching a new approach to income accounting is for the instructor to shed these attitudes and begin at the beginning. If you consider the reason for having an economic measuring system and the uses to which it will be put, the subject becomes very interesting. One goal of this chapter is to present ideas for making income accounting more exciting both to students and the instructor.

  PROBLEMS WITH GDP ACCOUNTING

  The standard textbook treatment of National Income Accounting develops the dual approach of adding up expenditures by category and summing income by source with appropriate adjustments so the results are equivalent to output. Output (GDP or GNP) is then used as a measure of national welfare and the figures are used to compare changes in national welfare across time and to compare across countries. The textbooks will mention the weaknesses of using these monetary measures as indicators of welfare, and list several of the important omissions or distortions that arise. The student is left believing that these problems are relatively minor and irre-solvable.

  To the contrary, the problems with the standard approach to national income accounts are neither minor nor necessary. GDP is not a “good” measure of national welfare. At best it is misleading, at worst it can lead to absolutely false conclusions. These distortions have serious gender, class and ethnic implications.

  For instance, Waring (1988:2) describes how

  as a politician, I found it virtually impossible to prove—given the production framework with which we were faced—that child care facilities were needed. “Nonproducers” (housewives, mothers) who are “inactive” and “unoccupied” cannot, apparently, be in need. They are not even in the economic cycle in the first place.

  Economic growth is defined by economists as an increase in GDP, with no regard for the composition of that output, the non-market effects of producing it, the possibility of depleting natural resources, and the quality of lives achieved for the people in the economy. Growth in GDP is generally seen, if not by economists, then by the press and politicians, as a measure of improvements in societal welfare. As such, it has been established as an official and unofficial goal. However, it excludes the value and values of those individuals and objects unrepresented by the monetary counting-up system. Even the New York Times

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  Social Accounting Systems

  • Louis Filler(Author)
  • 2017(Publication Date)
  • Routledge

    (Publisher)

  CHAPTER ONENational Accounts Systems – Concepts and Definitions

  I Origins

  A. Early Inquiries Into National Income Aggregates

  The interest of economists in determining the level of national income of a nation and its distribution among the various sectors -productive and non-productive – of the population can be traced to the 17th century. The ‘political arithmetician’ Gregory King made in 1696 an inquiry into ‘The Annual Income, and Expense of the Nation, at it stood Anno 1688’ [8 ] (This inquiry and other ‘Natural and Political Observations and Conclusions upon the State and Condition of England 1696 by Gregory King Esq., Lancaster Herald’ are subjoined in George Chalmers’ ‘An Estimate of the Comparative Strength of Great Britain’.) The contribution of this work lies mainly in the fact that information on the ‘income flow’ of a nation as compared with the ‘wealth’ of a nation had been provided.

  It was, however, only after the First World War that economists began to apply their analytical power and statistical tools to the measurement of current production and the distribution of its fruit.

  From scattered statistical data, Professor Bowley compiled and calculated the average wages and aggregate earnings of the working population since i860, and Sir Josiah Stamp adjusted information on the amount of taxable income as far back as 1847.

  More consistent and continuous, though not particularly systematic, statistical work was then also started by Government statistical offices in most western countries. These offices began to compile the necessary information and make appropriate computations of various income, expenditure and product aggregates, inter-related also with demographic statistics. At the same time, economists and statisticians have contributed a great deal to the analysis of these data. With their interest in income analysis they have gradually built up the theoretical background for a National Income Accounting system. The studies of Sir Josiah Stamp [5 ] and of Professor Bowley [4 ] instigated by the National Institute of Economic and Social Research have been a great stimulus for wider and deeper empirical observations on income, consumption, and savings. Professor C. Clark [9 ] not only computed and analyzed all the major national income aggregates, but also suggested clear definitions of the concepts of national income. In the United States, Professor Kuznets [26

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  Environmental and Natural Resource Economics

  A Contemporary Approach

  • Jonathan M. Harris, Brian Roach(Authors)
  • 2021(Publication Date)
  • Routledge

    (Publisher)

  Taking natural capital and environmental quality seriously affects the way that we evaluate measures of national income and well-being. Many economists would assert that a typical person living in a country with a high per capita average income is essentially “better off” than a person living in a country with a low per capita average income. But the overall well-being of people is dependent on many factors other than income levels, including health, education levels, social cohesion, and political participation. Most important from the point of view of environmental analysis, a country’s well-being is also a function of natural capital levels and environmental quality.

  Standard measures of gross national product (GNP) or gross domestic product (GDP) 1 measure a country’s level of marketed economic activity, which often implies how “developed” a country is. (See Appendix 10.1 for an introduction to National Income Accounting.) Macroeconomic analyses and international comparisons are commonly based on these measures, and they are widely recognized as important standards of economic progress.

  • gross national product (GNP) the total market value of all final goods and services produced by citizens of a particular country in a year, regardless of where such production takes place.
  • gross domestic product (GDP) the total market value of all final goods and services produced within a national border in a year.

  Yet many analysts have pointed out that these measures can give a highly misleading impression of economic and human development. To be fair, GDP was never intended to be an accurate measure of a country’s well-being. But politicians and economists often place disproportionate importance on GDP and act as if maximizing it is the primary objective of public policy. Maximizing GDP, however, can conflict with other policy goals, such as promoting social equity or protecting the environment.

  While GDP accurately reflects the monetary value of marketed goods and services, it fails to provide a broader measure of social welfare. “In spite of its apparent neutrality, GDP has come to represent a model of society, thereby influencing not only economic but also political and cultural processes.”2 Some of the common critiques of standard accounting measures such as GDP include:

  • Volunteer work is not accounted for

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  Applied International Economics

  • W. Charles Sawyer, Richard L. Sprinkle(Authors)
  • 2020(Publication Date)
  • Routledge

    (Publisher)

  First, the balance of payments is an important component of GDP. Changes in the various components of the balance of payments influence the performance of all economies in the short run. For businesses trying to keep track of the performance of the economies in which they do business, information on the balance of payments and its components is important. Second, over time, analyzing the balance of payments of a country will become increasingly important as international trade in goods, services, and capital flows become a larger part of GDP in most countries. As this occurs, it will have a greater impact on the short-run performance of the economy. Also, the larger international trade becomes relative to the rest of the economy, the more business opportunities there are in foreign trade relative to domestic business. Finally, a country’s interactions with the world economy can affect not only the country’s production of goods and services, but also its financial markets. Without an understanding of the balance of payments, the probability of making management errors could rise substantially. National Income Accounting National Income Accounting refers to the calculation of GDP for a country and the subdivision of GDP into various components. Included in the various components of GDP are exports and imports. However, exports and imports cannot be treated in isolation since they are also related to the other components of GDP. Understanding these relationships will make it easier for you to interpret how economic events affect not only international trade, but also the overall economy. In the first part of this chapter, we will briefly review some of the issues to consider when calculating GDP

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