National accounts

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National accounts or national account systems (NAS) are the implementation of complete and consistent accounting techniques for measuring the economic activity of a nation. These include detailed underlying measures that rely on double-entry accounting. By design, such accounting makes the totals on both sides of an account equal even though they each measure different characteristics, for example production and the income from it. As a method, the subject is termed national accounting or, more generally, social accounting . [1] Stated otherwise, national accounts as systems may be distinguished from the economic data associated with those systems. [2] While sharing many common principles with business accounting, national accounts are based on economic concepts. [3] One conceptual construct for representing flows of all economic transactions that take place in an economy is a social accounting matrix with accounts in each respective row-column entry. [4]

A scientific technique is any systematic way of obtaining information about a scientific nature or to obtain a desired material or product.

Methodology is the systematic, theoretical analysis of the methods applied to a field of study. It comprises the theoretical analysis of the body of methods and principles associated with a branch of knowledge. Typically, it encompasses concepts such as paradigm, theoretical model, phases and quantitative or qualitative techniques.

Social accounting is the process of communicating the social and environmental effects of organizations' economic actions to particular interest groups within society and to society at large. Social Accounting is different from public interest accounting as well as from critical accounting.

Contents

National accounting has developed in tandem with macroeconomics from the 1930s with its relation of aggregate demand to total output through interaction of such broad expenditure categories as consumption and investment. [5] Economic data from national accounts are also used for empirical analysis of economic growth and development. [1] [6]

Macroeconomics branch of economics that studies aggregated indicators

Macroeconomics is a branch of economics dealing with the performance, structure, behavior, and decision-making of an economy as a whole. This includes regional, national, and global economies.

In macroeconomics, Aggregate Demand (AD) or Domestic Final Demand (DFD) is the total demand for final goods and services in an economy at a given time. It is often called effective demand, though at other times this term is distinguished. This is the demand for the gross domestic product of a country. It specifies the amounts of goods and services that will be purchased at all possible price levels.

Economic data or economic statistics are data describing an actual economy, past or present. These are typically found in time-series form, that is, covering more than one time period or in cross-sectional data in one time period. Data may also be collected from surveys of for example individuals and firms or aggregated to sectors and industries of a single economy or for the international economy. A collection of such data in table form comprises a data set.

Scope

National accounts broadly present output, expenditure, and income activities of the economic actors (households, corporations, government) in an economy, including their relations with other countries' economies, and their wealth (net worth). They present both flows (measured but it is over a period) and stocks (measured at the end of a period), ensuring that the flows are reconciled with the stocks. As to flows, the national income and product accounts (in U.S. terminology) provide estimates for the money value of income and output per year or quarter, including GDP. As to stocks, the 'capital accounts' are a balance-sheet approach that has assets on one side (including values of land, the capital stock, and financial assets) and liabilities and net worth on the other, measured as of the end of the accounting period. National accounts also include measures of the changes in assets, liabilities, and net worth per accounting period. These may refer to flow of funds accounts or, again, capital accounts. [1]

Stock and flow

Economics, business, accounting, and related fields often distinguish between quantities that are stocks and those that are flows. These differ in their units of measurement. A stock is measured at one specific time, and represents a quantity existing at that point in time, which may have accumulated in the past. A flow variable is measured over an interval of time. Therefore, a flow would be measured per unit of time. Flow is roughly analogous to rate or speed in this sense.

The national income and product accounts (NIPA) are part of the national accounts of the United States. They are produced by the Bureau of Economic Analysis of the Department of Commerce. They are one of the main sources of data on general economic activity in the United States.

Gross domestic product market value of goods and services produced within a country

Gross domestic products (GDP) is a monetary measure of the market value of all the final goods and services produced in a specific time period, often annually. GDP (nominal) per capita does not, however, reflect differences in the cost of living and the inflation rates of the countries; therefore using a basis of GDP per capita at purchasing power parity (PPP) is arguably more useful when comparing differences in living standards between nations.

There are a number of aggregate measures in the national accounts, notably including gross domestic product or GDP, perhaps the most widely cited measure of aggregate economic activity. Ways of breaking down GDP include as types of income (wages, profits, etc.) or expenditure (consumption, investment/saving, etc.). Measures of these are examples of macro-economic data. [7] [8] [9] [10] Such aggregate measures and their change over time are generally of strongest interest to economic policymakers, although the detailed national accounts contain a source of information for economic analysis, for example in the input-output tables which show how industries interact with each other in the production process.

National accounts can be presented in nominal or real amounts, with real amounts adjusted to remove the effects of price changes over time. [11] A corresponding price index can also be derived from national output. Rates of change of the price level and output may also be of interest. An inflation rate (growth rate of the price level) may be calculated for national output or its expenditure components. Economic growth rates (most commonly the growth rate of GDP) are generally measured in real (constant-price) terms. One use of economic-growth data from the national accounts is in growth accounting across longer periods of time for a country or across to estimate different sources of growth, whether from growth of factor inputs or technological change. [12]

In economics, nominal value is measured in terms of money, whereas real value is measured against goods or services. A real value is one which has been adjusted for inflation, enabling comparison of quantities as if the prices of goods had not changed on average. Changes in value in real terms therefore include the effect of inflation. In contrast with a real value, a nominal value has not been adjusted for inflation, and so changes in nominal value reflect at least in part the effect of inflation.

A price index is a normalized average of price relatives for a given class of goods or services in a given region, during a given interval of time. It is a statistic designed to help to compare how these price relatives, taken as a whole, differ between time periods or geographical locations.

Economic growth increase in production and consumption in an economy

Economic growth is the increase in the inflation-adjusted market value of the goods and services produced by an economy over time. It is conventionally measured as the percent rate of increase in real gross domestic product, or real GDP.

The accounts are derived from a wide variety of statistical source data including surveys, administrative and census data, and regulatory data, which are integrated and harmonized in the conceptual framework. They are usually compiled by national statistical offices and/or central banks in each country, though this is not always the case, and may be released on both an annual and (less detailed) quarterly frequency. Practical issues include inaccuracies from differences between economic and accounting methodologies, lack of controlled experiments on quality of data from diverse sources, and measurement of intangibles and services of the banking and financial sectors. [13]

Statistics Study of the collection, analysis, interpretation, and presentation of data

Statistics is the discipline that concerns the collection, organization, displaying, analysis, interpretation and presentation of data. In applying statistics to a scientific, industrial, or social problem, it is conventional to begin with a statistical population or a statistical model to be studied. Populations can be diverse groups of people or objects such as "all people living in a country" or "every atom composing a crystal". Statistics deals with every aspect of data, including the planning of data collection in terms of the design of surveys and experiments. See glossary of probability and statistics.

An intangible asset is an asset that lacks physical substance; in contrast to physical assets, such as machinery and buildings, and financial assets such as government securities. An intangible asset is usually very hard to evaluate. Examples are patents, copyright, franchises, goodwill, trademarks, and trade names. The general interpretation also includes software and other intangible computer based assets; these are all examples of intangible assets. Intangible assets generally—though not necessarily—suffer from typical market failures of non-rivalry and non-excludability.

Two developments relevant to the national accounts since the 1980s include the following. Generational accounting is a method for measuring redistribution of lifetime tax burdens across generations from social insurance, including social security and social health insurance. It has been proposed as a better guide to the sustainability of a fiscal policy than budget deficits, which reflect only taxes minus spending in the current year. [14] Environmental or green national accounting is the method of valuing environmental assets, which are usually not counted in measuring national wealth, in part due to the difficulty of valuing them. The method has been proposed as an alternative to an implied zero valuation of environmental assets and as a way of measuring the sustainability of welfare levels in the presence of environmental degradation. [15]

Macroeconomic data not derived from the national accounts are also of wide interest, for example some cost-of-living indexes, the unemployment rate, and the labor force participation rate. [16] In some cases, a national-accounts counterpart of these may be estimated, such as a price index computed from the personal consumption expenditures and the GDP gap (the difference between observed GDP and potential GDP). [17]

Main components

The presentation of national accounts data may vary by country (commonly, aggregate measures are given greatest prominence), however the main national accounts include the following accounts for the economy as a whole and its main economic actors.

production accounts which record the value of domestic output and the goods and services used up in producing that output. The balancing item of the accounts is value added, which is equal to GDP when expressed for the whole economy at market prices and in gross terms;
income accounts, which show primary and secondary income flows - both the income generated in production (e.g. wages and salaries) and distributive income flows (predominantly the redistributive effects of government taxes and social benefit payments). The balancing item of the accounts is disposable income ("National Income" when measured for the whole economy);
expenditure accounts, which show how disposable income is either consumed or saved. The balancing item of these accounts is saving.

The accounts may be measured as gross or net of consumption of fixed capital (a concept in national accounts similar to depreciation in business accounts).

Notably absent from these components, however, is unpaid work, because its value is not included in any of the aforementioned categories of accounts, just as it is not included in calculating gross domestic product (GDP). An Australian study has shown the value of this uncounted work to be approximately 50% of GDP, making its exclusion rather significant. [18] As GDP is tied closely to the national accounts system, [19] this may lead to a distorted view of national accounts. Because national accounts are widely used by governmental policy-makers in implementing controllable economic agendas, [20] some analysts have advocated for either a change in the makeup of national accounts or adjustments in the formulation of public policy. [21]

History

The original motivation for the development of national accounts and the systematic measurement of employment was the need for accurate measures of aggregate economic activity. This was made more pressing by the Great Depression and as a basis for Keynesian macroeconomic stabilisation policy and wartime economic planning. The first efforts to develop such measures were undertaken in the late 1920s and 1930s, notably by Colin Clark and Simon Kuznets. Richard Stone of the U.K. led later contributions during World War II and thereafter. The first formal national accounts were published by the United States in 1947. Many European countries followed shortly thereafter, and the United Nations published A System of National Accounts and Supporting Tables in 1952. [1] [22] International standards for national accounting are defined by the United Nations System of National Accounts, with the most recent version released for 2008. [23]

Even before that in early 1920s there were national economic accounts tables. One of such systems was called Balance of national economy and was used in USSR and other socialistic countries to measure the efficiency of socialistic production. [24]

In Europe, the worldwide System of National Accounts has been adapted in the European System of Accounts (ESA), which is applied by members of the European Union and many other European countries. Research on the subject continues from its beginnings through today. [25]

See also

Related Research Articles

A variety of measures of national income and output are used in economics to estimate total economic activity in a country or region, including gross domestic product (GDP), gross national product (GNP), net national income (NNI), and adjusted national income also called as NNI at factor cost. All are specially concerned with counting the total amount of goods and services produced within the economy and by different sectors. The boundary is usually defined by geography or citizenship, and it is also defined as the total income of the nation and also restrict the goods and services that are counted. For instance, some measures count only goods & services that are exchanged for money, excluding bartered goods, while other measures may attempt to include bartered goods by imputing monetary values to them.

Public finance study of the role of the government in the economy; branch of economics

Public finance is the study of the role of the government in the economy. It is the branch of economics that assesses the government revenue and government expenditure of the public authorities and the adjustment of one or the other to achieve desirable effects and avoid undesirable ones.

The green gross domestic product is an index of economic growth with the environmental consequences of that growth factored into a country's conventional GDP. Green GDP monetizes the loss of biodiversity, and accounts for costs caused by climate change. Some environmental experts prefer physical indicators, which may be aggregated to indices such as the "Sustainable Development Index".

Government spending Government consumption, investment, and transfer payments

Government spending or expenditure includes all government consumption, investment, and transfer payments. In national income accounting the acquisition by governments of goods and services for current use, to directly satisfy the individual or collective needs of the community, is classed as government final consumption expenditure. Government acquisition of goods and services intended to create future benefits, such as infrastructure investment or research spending, is classed as government investment. These two types of government spending, on final consumption and on gross capital formation, together constitute one of the major components of gross domestic product.

Gross fixed capital formation

Gross fixed capital formation (GFCF) is a macroeconomic concept used in official national accounts such as the United Nations System of National Accounts (UNSNA), National Income and Product Accounts (NIPA) and the European System of Accounts (ESA). The concept dates back to the National Bureau of Economic Research (NBER) studies of Simon Kuznets of capital formation in the 1930s, and standard measures for it were adopted in the 1950s. Statistically it measures the value of acquisitions of new or existing fixed assets by the business sector, governments and "pure" households less disposals of fixed assets. GFCF is a component of the expenditure on gross domestic product (GDP), and thus shows something about how much of the new value added in the economy is invested rather than consumed.

Value product

The value product (VP) is an economic concept formulated by Karl Marx in his critique of political economy during the 1860s, and used in Marxian social accounting theory for capitalist economies. Its annual monetary value is approximately equal to the netted sum of six flows of income generated by production:

The System of National Accounts is an international standard system of national accounts, the first international standard being published in 1953. Handbooks have been released for the 1968 revision, the 1993 revision, and the 2008 revision. The System of National Accounts, in its various released versions, frequently with significant local adaptations, has been adopted by many nations. It continues to evolve and is maintained by the United Nations, the International Monetary Fund, the World Bank, the Organisation for Economic Co-operation and Development and the Statistical Office of the European Communities

In economics, gross output (GO) is the measure of total economic activity in the production of new goods and services in an accounting period. It is a much broader measure of the economy than gross domestic product (GDP), which is limited mainly to final output. In 2016, the Bureau of Economic Analysis estimated gross output in the United States to be $32.1 trillion, compared to $18.6 trillion for GDP.

Operating surplus is an accounting concept used in national accounts statistics and in corporate and government accounts. It is the balancing item of the Generation of Income Account in the UNSNA. It may be used in macro-economics as a proxy for total pre-tax profit income, although entrepreneurial income may provide a better measure of business profits. According to the 2008 SNA, it is the measure of the surplus accruing from production before deducting property income, e.g., land rent and interest.

Net output is an accounting concept used in national accounts such as the United Nations System of National Accounts (UNSNA) and the NIPAs, and sometimes in corporate or government accounts. The concept was originally invented to measure the total net addition to a country's stock of wealth created by production during an accounting interval. The concept of net output is basically "gross revenue from production less the value of goods and services used up in that production". The idea is that if one deducts intermediate expenditures from the annual flow of income generated by production, one obtains a measure of the net new value in the new products created.

Capital formation Increasing the stock of real capital in the country

Capital formation is a concept used in macroeconomics, national accounts and financial economics. Occasionally it is also used in corporate accounts. It can be defined in three ways:

Double counting in accounting is an error whereby a transaction is counted more than once, for whatever reason. But in social accounting it also refers to a conceptual problem in social accounting practice, when the attempt is made to estimate the new value added by Gross Output, or the value of total investments.

Material Product System (MPS) refers to the system of national accounts used by 16 Leninist countries for different lengths of time, including the former Soviet Union and the Eastern Bloc countries, Cuba, China (1952-1992) and several other Asian countries The MPS has now been replaced by the UNSNA accounts in most countries that used MPS, although some countries such as Cuba and North Korea have continued to use MPS alongside UNSNA-type accounts. Today it is difficult to obtain detailed information about accounting systems which are an alternative to UNSNA, and therefore few people know that such systems exist and have been used by various countries.

In economics, distribution is the way total output, income, or wealth is distributed among individuals or among the factors of production. In general theory and the national income and product accounts, each unit of output corresponds to a unit of income. One use of national accounts is for classifying factor incomes and measuring their respective shares, as in national Income. But, where focus is on income of persons or households, adjustments to the national accounts or other data sources are frequently used. Here, interest is often on the fraction of income going to the top x percent of households, the next x percent, and so forth, and on the factors that might affect them.

Education economics academic discipline

Education economics or the economics of education is the study of economic issues relating to education, including the demand for education, the financing and provision of education, and the comparative efficiency of various educational programs and policies. From early works on the relationship between schooling and labor market outcomes for individuals, the field of the economics of education has grown rapidly to cover virtually all areas with linkages to education.

Natural capital accounting is the process of calculating the total stocks and flows of natural resources and services in a given ecosystem or region. Accounting for such goods may occur in physical or monetary terms. This process can subsequently inform government, corporate and consumer decision making as each relates to the use or consumption of natural resources and land, and sustainable behaviour.

United Kingdom National Accounts – The Blue Book

The annual United Kingdom National Accounts records and describes economic activity in the United Kingdom and as such is used by government, banks, academics and industries to formulate the economic and social policies and monitor the economic progress of the United Kingdom. It also allows international comparisons to be made. The Blue Book is published by the UK Office for National Statistics alongside the United Kingdom Balance of Payments – The Pink Book.

This glossary of economics is a list of definitions of terms and concepts used in economics, its sub-disciplines, and related fields.

References

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