National Accounting 21/11/2018 Dr. Amr Nazieh

Ch 2: The basic concepts of the National Accounting 21/11/2018 Dr. Amr Nazieh

Ch 2: The basic concepts of the National Accounting The main concepts of the national accounting mostly resulted from the economic theory, and been affected by the economic concepts. According to this, we are going in the coming paragraphs to display and explain those concepts of the national accounting 21/11/2018 Dr. Amr Nazieh

Gross National Productions The ending value of goods and services produced within a given period and evaluated according to the market prices. 21/11/2018 Dr. Amr Nazieh

Ch 2: The basic concepts of the National Accounting These goods and services are valuable in view of three alternatives: (1) Direct consumption by people. (2) Storage and adding the value to the national wealth. (3) Exporting them to other foreign countries. 21/11/2018 Dr. Amr Nazieh

Ch 2: The basic concepts of the National Accounting According to the definition of the national accounting, some basic notes should be considered as:- (1) The measurement technique should focus mainly upon measuring the value instead of measuring the quantity of goods and services produced. 21/11/2018 Dr. Amr Nazieh

Ch 2: The basic concepts of the National Accounting (2) Internal cash transfers, as; persons and other support schemes to the low income persons, should not be considered within the national production, as; they will not lead to a real increase in the national production . 21/11/2018 Dr. Amr Nazieh

Ch 2: The basic concepts of the National Accounting (3) Some values should be added to the value of the national production, such as, the quantity of production reserved by the producer ( crops for instance ) for his personal usage, or the imputed wages by the personal owners who do some jobs without receiving wages. All these values should be add to the measurement of the national production. 21/11/2018 Dr. Amr Nazieh

Ch 2: The basic concepts of the National Accounting (4) The value of the secondhand products should be excluded from the value of the national production. (5) Share and bonds traded in the board of exchange should not have any effect upon national production, this is because they do not represent a final products. 21/11/2018 Dr. Amr Nazieh

Ch 2: The basic concepts of the National Accounting (6) In cases of putting shares and bonds for sales to obtain an additional new source of finance, then these transactions should be considered within the national production as, they will lead to increase production. 21/11/2018 Dr. Amr Nazieh

Ch 2: The basic concepts of the National Accounting (7) In order to achieve a real comparison between the different years in ease of national production, real values rather than cash values which should be considered . This result appeared to face and detect the continuous reduction in the purchasing power of money. 21/11/2018 Dr. Amr Nazieh

Ch 2: The basic concepts of the National Accounting In order to achieve a correct comparison between the different periods with regard to the value of the national production measured in cash, a price index, which help in exculpating the effect of prices charges between the different years 21/11/2018 Dr. Amr Nazieh

Ch 2: The basic concepts of the National Accounting The price index of any year= Prices of the Comparable Year Prices of the basis year 21/11/2018 Dr. Amr Nazieh

Ch 2: The basic concepts of the National Accounting Example :- Suppose that the following are the prices of a certain national product during the previous 10 years: 2003 2002 2001 2000 1999 1998 1997 1996 1995 1994 Year 2.8 2.6 2.3 2.5 2.4 2.0 1.9 1.8 1.5 Price 21/11/2018 Dr. Amr Nazieh

Ch 2: The basic concepts of the National Accounting Suppose also that quantities of production during these years were amounted to : 2003 2002 2001 2000 1999 1998 1997 1996 1995 1994 Year 2500 2600 2400 3000 2700 2900 4000 Qu 21/11/2018 Dr. Amr Nazieh

Ch 2: The basic concepts of the National Accounting Required : 1- Prepare the price index to the previous commodity, using the price of 1994 as a basis year. 2-Determine the real value of the national production. 21/11/2018 Dr. Amr Nazieh

Ch 2: The basic concepts of the National Accounting Solution : With regard to year 1994 as a basis year. Then, it should be considered equals to 100%. According to this., the index prices of the following years, will be counted as follows: 21/11/2018 Dr. Amr Nazieh

Ch 2: The basic concepts of the National Accounting Solution : With regard to year 1994 as a basis year. Then, it should be considered equals to 100%. According to this., the index prices of the following years, will be counted as follows: 21/11/2018 Dr. Amr Nazieh

Ch 2: The basic concepts of the National Accounting Year 1995 = (1.8 ÷ 1.5) × 100 = 120%. Year 1996 = (2 ÷ 1.5) × 100 = 133%. Year 1997 = (1.9 ÷ 1.5) × 100 = 127%. And then the index prices of the different years will appear in the following table: 2003 2002 2001 2000 1999 1998 1997 1996 1995 1994 Year 187 173 153 167 160 147 127 133 120 100 Price 21/11/2018 Dr. Amr Nazieh

Ch 2: The basic concepts of the National Accounting From the price index table one can set the real values of production during the given period as follows: 2003 2002 2001 2000 1999 1998 1997 1996 1995 1994 Year 2500 2600 2400 3000 2700 2900 4000 Cash V 187 173 153 167 160 147 127 133 120 100 Price 1337 1503 1569 1198 1875 1837 2288 1880 3333 Real V 21/11/2018 Dr. Amr Nazieh

Ch 2: The basic concepts of the National Accounting From pervious table one can reach the real values of the national production after the exclusion of the price change effects 21/11/2018 Dr. Amr Nazieh

Ch 2: The basic concepts of the National Accounting Alternative concepts of the national production : It was appeared different concepts to explain the meaning of the national production, according to the differences of the economic themes of the different countries as well as the objectives of preparing the national accounts of each. 21/11/2018 Dr. Amr Nazieh

Ch 2: The basic concepts of the National Accounting Accordingly, three alternative concepts appeared as follows : 1- Gross National production : It considers what was yield from an economy during a specific period . It considers all produced production either tangible or intangible, which satisfies the needs of individuals. 21/11/2018 Dr. Amr Nazieh

Ch 2: The basic concepts of the National Accounting The main characteristics of the gross production, includes : (1) It includes what is valuable for people, during a specific period of time. (2) It excludes all available natural resources to the society, in addition to any foreign financial support and subsidiary. 21/11/2018 Dr. Amr Nazieh

Ch 2: The basic concepts of the National Accounting (3)It includes all commodities produced, therefore, it does not exclude the amount of commodities consumed by the producer of that commodities. 21/11/2018 Dr. Amr Nazieh