Lecture 2:

National Income Accounting

Reference - Chapter 5
LEARNING OBJECTIVES
5.1 What gross domestic rod!ct
"G#$% is& a'd ho( to meas!re it.
5.) Other meas!res o* a 'atio'+s
rod!ctio' o* goods a'd ser,ices.
5.- The disti'ctio' .et(ee' 'omi'a/
G#$ a'd Rea/ G#$
5.0 The shortcomi'gs o* G#$ as a
meas!re o* domestic o!t!t a'd
(e//1.ei'g.
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NATIONAL INCO2E ACCO3NTING
Natio'a/ i'come acco!'ti'g is the tech'i4!e
!sed to meas!re the o,era// rod!ctio' o*
the eco'om5 a'd other re/ated ,aria./es *or
the 'atio' as a (ho/e.
GROSS #O2ESTIC $RO#3CT "G#$%
G#$ is the tota/ mar6et ,a/!e o* a// *i'a/
goods a'd ser,ices rod!ced i' a gi,e' 5ear
(ithi' the .o!'daries o* a co!'tr5.
1 Jaa'ese1o('ed *actor5 i' ON
1 It is a mo'etar5 meas!re o* the o!t!t o*
a 'atio'
Three Aroaches to 2eas!re G#$
1% $rod!ct Aroach or Va/!e Added
Aroach
)% E7e'dit!res Aroach
-% I'come Aroach
)
1% $rod!ct or Va/!e Added
Aroach
The rod!ct aroach de*i'es a 'atio'+s
G#$ as the mar6et ,a/!e o* *i'a/ goods
a'd ser,ices 'e(/5 rod!ced (ithi' a
'atio' d!ri'g a *i7ed eriod o* time.
1 E7am/e8 - so*as "95:: each% a'd )
$Cs "9)::: each% ,ers!s ) so*as a'd
- $Cs
1 A,oid 2!/ti/e Co!'ti'g
1 I'c/!de o'/5 final goods a'd ig'ore
intermediate goods a/together
1 Intermediate goods are goods a'd
ser,ices that are !rchased *or resa/e
or *or *!rther rocessi'g or
ma'!*act!ri'g.
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1 Final goods are goods a'd ser,ices
that are ac4!ired *or *i'a/ !se .5 the
!rchaser& a'd 'ot *or resa/e or *or
*!rther rocessi'g or ma'!*act!ri'g.
1 A,oid 2!/ti/e Co!'ti'g .5
meas!ri'g a'd c!m!/ati'g o'/5 the
value added at each stage.
1 Value added is the mar6et ,a/!e o*
the rod!ct so/d .5 a *irm& /ess the
,a/!e o* the rod!cts !rchased a'd
!sed .5 the *irm to rod!ce the
rod!ct.
1 E7am/e8 Ta./e 51)
1 G#$ E7c/!des No'1$rod!ctio'
Tra'sactio's
)% ;i'a'cia/ Tra'sactio's
1 $!./ic Tra's*er $a5me'ts
1 $ri,ate Tra's*er $a5me'ts
1 Stoc61mar6et Tra'sactio's
1 )% Seco'd1<a'd Sa/es
0
)% E7e'dit!res Aroach
The e7e'dit!res aroach de*i'es G#$ as
the s!m o* a// the mo'e5 se't i' .!5i'g
*i'a/ goods a'd ser,ices.
1 G#$ = Co's!mtio' "C% >
Gross I',estme't "Ig% >
Go,er'me't $!rchases "G% >
Net E7orts "?'%
1 E7am/e8 ;or Ca'ada i' )::)
G#$= 9@5@.)>1A@.B>)51.@>5:.-=1150.A
$erso'a/ Co's!mtio' E7e'dit!res "C%
C are the e7e'dit!res o* ho!seho/ds *or
d!ra./e a'd 'o'1d!ra./e co's!mer goods
a'd ser,ices.
5
Gross I',estme't "Ig%
Ig are the e7e'dit!res *or 'e(/5 rod!ced
caita/ goods a'd *or additio's to
i',e'tories.

1 1% A// *i'a/ !rchases o* machi'er5&
e4!ime't& a'd too/s .5 .!si'esses
1 )% A// co'str!ctio' "reside'tia/
co'str!ctio' as (e// as the co'str!ctio'
o* 'e( *actories& (areho!ses& a'd stores%
1 -% Cha'ges i' i',e'tories
1 I'creases i' i',e'tories "!'so/d goods%
are co'sidered to .e i',estme't .eca!se
the5 are !'co's!med o!t!t.
1 $ositi,e a'd 'egati,e cha'ges i'
i',e'tories
1 $ositi,e i',e'tories mea' more o!t!t
rod!ced tha' (as !rchased& ,ice
,ersa.
@
1 No'1i',estme't tra'sactio's1 tra's*er o*
aer assets "stoc6s& .o'ds% or resa/e o*
ta'gi./e assets "ho!ses& Ce(e//er5& .oats%.
I',estme't has to do (ith the creatio' o*
'e(& h5sica/ caita/ assets D assets that
create Co.s a'd i'come. The tra's*er
"sa/e% o* c/aims o* e7isti'g caita/ goods
does 'ot create 'e( caita/.
1 Gross i',estme't i'c/!des i',estme't i'
re/aceme't caita/ a'd i' added caita/.
1 Net i',estme't= Gross I',estme't1
#ereciatio'
1 Caita/ co's!mtio' a//o(a'ce or
dereciatio' is the amo!'t o* caita/ that
is !sed ! "co's!med% i' rod!ci'g the
G#$.
Go,er'me't $!rchases "G%
E
G are the e7e'dit!res *or goods a'd
ser,ices that go,er'me't co's!mes i'
ro,idi'g !./ic ser,ices.
1 i'c/!de a// go,er'me't e7e'dit!res o'
*i'a/ goods& i',estme't goods& a'd a//
direct !rchases o* reso!rces& i'c/!di'g
/a.o!r.
1 does 'ot i'c/!de go,er'me't tra's*er
a5me'ts.
Net E7orts " ?'%
Net E7orts "?'% = E7orts "?% D
Imorts "2%
1G#$ records a// se'di'g o' goods a'd
ser,ices rod!ced i' Ca'ada& i'c/!di'g
se'di'g o' Ca'adia' o!t!t .5 eo/e
a.road "e7orts%.
B
1 Ca'adia's se'd a great dea/ o* mo'e5 o'
imorts1 goods a'd ser,ices rod!ced
a.road. That se'di'g sho(s ! i' some
other 'atio'+s G#$. So& (e m!st s!.tract the
,a/!e o* imorts *rom G#$ to a,oid
o,erstati'g tota/ rod!ctio' i' Ca'ada.
1 I' )::)& 'et e7orts (ere a ositi,e 95:.-
.i//io'.
-% The I'come Aroach
The i'come aroach de*i'es G#$ i' terms
o* the i'come deri,ed or created *rom
rod!ci'g *i'a/ goods a'd ser,ices.
Net #omestic I'come at *actor cost =
A
Wages& Sa/aries& a'd S!/eme'tar5
La.o!r I'come>
$ro*its o* Cororatio's a'd Go,t.
E'terrises .e*ore ta7es >
I'terest a'd I',estme't I'come >
Net I'come *rom ;arms a'd
3'i'cororated B!si'esses >
Ta7es /ess s!.sidies o' *actors o*
rod!ctio'
Net #omestic I'come at mar6et rices =
Net #omestic I'come at *actor cost >
I'direct ta7es /ess s!.sidies
Gross #omestic $rod!ct "G#$% at
mar6et rices =
Net #omestic I'come at mar6et
rices >
Caita/ Co's!mtio' A//o(a'ces >
Statistica/ #iscrea'c5
OT<ER NATIONAL ACCO3NTS
1:
Gross Natio'a/ $rod!ct "GN$% =
Gross #omestic $rod!ct "G#$% >
Net I',estme't *rom No'1reside'ts
= 1150.A D B0.A = 1:E:
E7am/e D The rod!ctio' o* cars i' the
<o'da *actor5 i' A//isto'& O'tario is
i'c/!ded i' .oth Ca'adia' G#$ a'd
GN$. B!t GN$ e7c/!des ro*it se't to
*oreig' shareho/ders o* <o'da& .!t this
ro*it is i'c/!ded i' Ca'adia' G#$.
Net #omestic $rod!ct "N#$% =
GN$ D #ereciatio'
= 1:E:D155 = A15
Net Natio'a/ I'come at Basic $rices
"NNI%=
N#$1
Ta7es /ess s!.sidies o' *actors o*
rod!ctio' 1
I'direct ta7es /ess s!.sidies
11
= A15 D 5-.B D B0.0
= EE@.B
$erso'a/ I'come = NNI D 3'distri.!ted
Cororate $ro*its > Go,t. Tra's*er
$a5me'ts
= EE@.B D 0A.: >E1.-
= B0B.1
#isosa./e I'come = $I D $erso'a/Ta7es
= B0B D 15).)
= @A5.A
GN$
N#$
NNI
$I
#I
Nomi'a/ G#$ Vs Rea/ G#$
$rice I'de7
A' a/ter'ati,e 2ethod
G#$ #e*/ator
Chai' Weighted I'de7
Shortcomi'gs o* G#$
1)
1 2eas!reme't Shortcomi'gs
o No'12ar6et Tra'sactio's
o The 3'dergro!'d Eco'om5
o Leis!re
1 Imro,ed $rod!ct F!a/it5
1 We//1.ei'g 2eas!re Shortcomi'gs
o G#$ a'd The E',iro'me't
o Comositio' a'd #istri.!tio' o* O!t!t
o No'1materia/ So!rces o* We//1.ei'g
I'come Aroach

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