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1、Outcome 2 (Chapter 4),The System of National Accounts (SNA),In this chapter we will look at an important part of macroeconomics-National Income (generalized concept),The National Income of a country is a measure of the goods and services produced in a country over a period of one year.,Essential ind
2、icator in calculating national income GDP-Gross Domestic Product is the value of aggregate production of goods and services in a country during a given time period, usually a year.Two fundamental concepts forms the foundation on which GDP measurement is made:,The distinction between stocks and flows
3、. The equality of income, expenditure and the value of production (output).SY TC Ggovernment borrowingY I Foreign borrowingFirms borrowingI C G NX,House-holds,government,Firms,Rest of the world,Factor market,Goods & services market,Financial market,To see that for the economy as a whole, aggregate i
4、ncome = aggregate expenditure = the value of output.Households and Firms Households sell and firms buy the services of labour, capital, land and entrepreneurship in factor markets. For factor services, firms pay income to households-wages for labour, interest for the use of capital, rent for the use
5、 of land and profits for entrepreneurship.,Firms sell and households buy consumer goods and services in goods & services markets. The aggregate payment that households make for these goods and services is Consumption Expenditure (C). Firms buy and sell new capital equipments in the goods markets. So
6、me of what firms produce might not be sold at all and is added to stock. When a firm adds unsold output to stock, we can think of the firm as buying goods from itself. The purchase of new plant, equipment and building and the additions to stock are Investment (I).,Firms finance their investment by b
7、orrowing from households in financial markets. These flows are neither income nor expenditure.Governments Governments buy goods and services from firms in goods markets (Government PurchasesG) and pay for their purchases from net taxes (T). Net tax= tax transfer payment interest on debt GT, governme
8、nt has a budget deficit government borrowing; TG, a budget surplus.,Rest of World Sector Firms export goods and services to the rest of world and import goods and services from the rest of world. The value of export minus the value of import is called Net Export (NX).NX= the value of export the valu
9、e of import NX0, flows from the rest of world to firms, the rest of world is in deficit with us and we are in surplus; to finance its deficit, the rest of world either borrow from domestic economy or sells domestic assets that it owns.,In whole economy, Aggregate income = Aggregate ExpenditureY = C
10、+ I + G + NXIt is used to provide the two approaches to measuring GDP and it is used to create other accounts that help us to keep track of the flows of saving and investment, the government budget, and the balance of our exports and imports.,Measuring GDP To measure GDP, the Office for National Sta
11、tistics uses three approaches: Expenditure Approach Factor Income Approach Output Approach1. Expenditure Approach This approach measures GDP by collecting data on consumption expenditure (C), investment (I), government purchases of goods and services (G) and net export (NX).,By adding all these expe
12、nditures, we obtain GDP at market price (including taxes on goods -indirect tax and government subsidies）; when deduct indirect tax and plus subsidies, we get GDP at factor cost.Items that are not part of GDP include the purchase of: a. Intermediate goods and servicesb. Second-hand goodsc. Financial
13、 securitiesSee example on page 158,2. Factor Income Approach This approach measures GDP by summing all the incomes paid by firms to households for services of the factors of production they hire-wages for labour, interest for capital, rent for land and profits paid for entrepreneurship.Factor income
14、s are divided into four categories:Compensation of employees Net wages fringe benefits (social security, pension fund),Rent Rent for housing; imputed rent for owner-occupied housing Gross Trading Profits and Surplusdividends undistributed profits Income from self-employment mixed income; gross opera
15、ting surplus Stock appreciation need to be subtracted from the calculation of income. Refer to an example on page 155,By summing all items above, we get GDP at factor cost because it does not take account in taxes on goods and services and subsidies.If add indirect tax and subtract subsidies, get us
16、 to GDP at market price.,3. The Output Approach The third method used to measure GDP is the output method which measures the contribution that an industry makes to GDP.Please refer to the textbook on page 151To measure the value of production of an individual industry, we must be careful to count only the value added by that industry. Value added is the value of a firms production minus the value of the intermediate goods bought from other firms.,
