National Accounts

Rui Motarmota@ist.utl.pt

Tel. 21 841 9440 Ext. 3440

Tiago Domingos

October 2010

Engenharia do Ambiente

National Accounts

• System of National Accounts is a comprehensive accounting framework within which economic data can be compiled and presented in a format that is designed for purposes of economic analysis, decision-taking and policy-making.

• Integrates a set of macroeconomic accounts, balance sheets and tables based on a set of internationally agreed concepts, definitions, classifications and accounting rules.

• Accounts compiled for a succession of time periods, thus providing a continuing flow of information, indispensable for the monitoring, analysis and evaluation of the performance of an economy over time.

Aggregation

• 5 Sectors:

– Households

– Firms

– Financial Intermediaries (banks, …)

– Governments (national and local)

– Rest Of the World (ROW)

• 4 Markets (Supply and Demand):

– Goods and services

– Resources (labor, land and capital)

– Money (loanable funds)

– Foreign exchange

Circular flow of income

• Factors: Labor, Land, Capital

• Factor payments: Wage, Rents, Interests, Profits – become income.

• Expenditures: on goods and services (output)

• 1 – Income approach: Y = Wage + Rent + interest + operating surplus

• 2 – Output approach: Y = market value of all produced output (Σ VA)

• 3 – Expenditure approach: Y = C

Households

Firms

OutputFactorsFactor payments: Y

Expenditures: C

1 2 3

€€

Circular flow of income

• Balance to:

– Households: Y - Tnet = C + S, Tnet = T- Tr

– Firms: Y = C + I + G + X - M

– Government: ΔGov = Tnet - G

– FI: S + ΔGov + B - L = I

– ROW: X - M = L - B

Households

Firms

C

FIS

I

Gov.

Y

T

Tr

G

ROW

X

M

ΔGov

BorrowLend

- Market for outputs

National Accounts Identity

CIXM

Main Aggregates

National(Residence)

- Primary income - Primary income flows to ROWflows to ROW

Product / Income

+ Primary income + Primary income flows from ROWflows from ROW

Domestic(Territory)

Net

+ Consumption + Consumption Fixed Capital Fixed Capital (CFC)(CFC)

Aggregate X - Consumption of - Consumption of Fixed Capital (CFC)Fixed Capital (CFC)

Gross

X – Domestic produc, Income, Saving, Disposable income, ...

• GNI = GDP + Y’RM . Where Y’RM = Net income payable to non-resident units for production factors.

Domestic Product vs. National Income

Main Aggregates

GDP

+ Primary income flows from ROW

- Primary income flows to ROW

= Gross National Income (GNI)= Gross National Income (GNI)

+ Current net transfers from ROW

= Gross Disposable Income (GDI)= Gross Disposable Income (GDI)

- Final consumption (Private and Government)

= Gross Saving (S)= Gross Saving (S)

Net Domestic Product (NDP)

= Net National Income (NNI)= Net National Income (NNI)

= Net Disposable Income (NDI)= Net Disposable Income (NDI)

= Net Saving (NS)= Net Saving (NS)

Subtract CFC

Domestic Product vs. National Income

Source: AMECO database

Domestic vs National [euros 2000]

0

20

40

60

80

100

120

140

160

180

1960 1965 1970 1975 1980 1985 1990 1995 2000 2005

Mil

liard

s e

uro

s

PT Domestic

Ireland Domestic

PT National

Ireland National

Gross Product vs. Net Product [euros 2000]

Source: AMECO database

0

20000

40000

60000

80000

100000

120000

140000

160000

1990 1995 2000 2005

Mil

lio

n e

uro

s

GDP

NDP

Gross/Net Saving in Portugal [euros 2000]

Source: AMECO database

-10000

-5000

0

5000

10000

15000

20000

25000

1960 1965 1970 1975 1980 1985 1990 1995 2000 2005

Mill

ion

eu

ros

Gross national saving

Net nation saving

Net Investment