econ 215: introduction to the economy of ghana 1 · national income accounting what is national...

ECON 215: INTRODUCTION TO

THE ECONOMY OF GHANA 1

NATIONAL INCOME ACCOUNTING

(PART 2)

1 Economy of Ghana Lecture Materials by Dr. Emmanuel Codjoe


What is national income accounting?

How is this a useful exercise to the economy?

What are benefits to the country?

What are the difficulties encountered in preparing the national accounts?

What are the limitations to its uses?



The difficulties in preparing the

national income accounts

We noted that national income accounts

are fundamental aggregate statistics, and

combined with other types of data

provide other useful indicators to assess

economic performance.





Nevertheless, there are many difficulties

– both conceptual and statistical – in

measuring the national income of a

country accurately.





The problem of double counting: only final goods and services should be included in the national income accounting. But usually very difficult to distinguish between final and intermediate goods and services.





The problem of inadequate and unreliable statistics: reliable and accurate data are crucial in computing the national income accounts. The accounts need to be honest, to be useful.





The treatment of non-monetary

transactions: how to treat

transactions, such as the services of

housewives, services provided by family

members, as well as unpaid family work.





Wages and salaries paid in kind:

another related problem is that of

payments made in kind for work done.

These cannot be included in the national

income accounts.





Wages and salaries paid in kind: but

these payments in kind are supplements

to wages and salaries on the income

side.





Petty production: in Ghana, as in

many developing countries, there are

several economic activities that are

classified as informal economic

activities.





Petty production: associated with this is that of petty production by producers and distribution by retailers. Their production activities are invariably difficult to capture in the national accounts.





The underground economy: this consists broadly of illegal and undeclared transactions, especially where the goods and services are themselves illegal, such as drugs, smuggled goods, prostitution, etc.





Transfer payments: certain

individuals receive a pension, allowances,

grants and other transfers. Whilst they

form part of individual incomes they are

also part of government expenditures.





Transfer payments: these payments

therefore create difficulties in the

measurement of the national income.





Public services: another problem

relates to the treatment of public

services, like civil service administration,

police, army, fire services, etc. It is very

difficult to evaluate such services.





Government expenditures: a related problem is that of government expenditures. Because they are not voluntarily elicited nor priced in the market, they are valued at cost, which is the cost of labour.





Government expenditures: hence,

the capital cost of the buildings and land

used is not included in the expenditures

undertaken by government.





Price changes: national income is the money value of goods and services. But this depends on prices, which often changes. Thus, price rises can give a higher value of national income when production is decreasing.




Errors in measurement and unrecorded activities

Inflation

Does NOT Include Welfare

Does not capture environmental damage




Measurement excludes other indicators of social wellbeing, such as quality of life, equity

Does not account for non-market production at the household, e.g., cleaning, childcare, laundry, etc.



What are the limitations to its

uses?

Subcategories may be

misrepresented, e.g., what to

include in consumption or

government spending.



What are the limitations to its

uses?

Gray market activities, such the

production and distribution of

marijuana can be significant

sources of sustenance in

economies but are not included.


econ 215: introduction to the economy of ghana 1 · national income accounting what is national...

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