National Accounting 28/04/2019 Dr. Amr Nazieh

Ch 2: The basic concepts of the National Accounting National Income It represent the returns from using factors of production. Labor has to receiver wages, the owner of capital has to receive profits for his organizing the firm and for facing some sorts of risk. 28/04/2019 Dr. Amr Nazieh

Ch 2: The basic concepts of the National Accounting National Income All these returns will represent the price of using these elements' in the national production. Therefore, national production is the sum of all income received by the different factors of production. 28/04/2019 Dr. Amr Nazieh

Ch 2: The basic concepts of the National Accounting National income includes the following individual revenues as follows:  1- Wages salaries, fringe benefits etc, to pay for labour element 2- Profits to pay for capital. 3- Rent to pay the cost of using the land. 4- Profit paid for organization. 28/04/2019 Dr. Amr Nazieh

Ch 2: The basic concepts of the National Accounting In addition to these, some important notes, should be considered as : a- Transfer payments should be excluded, examples of these are, pensions and the retirement compensations.  b- Debit interests should be considered only from the view of the entity used loans, not from the lending entity. 28/04/2019 Dr. Amr Nazieh

Ch 2: The basic concepts of the National Accounting c- Profits should be considered only when created and not when collected.  d- Profits of revaluating Inventory should be excluded from the national income. 28/04/2019 Dr. Amr Nazieh

Ch 2: The basic concepts of the National Accounting  e- Capital gains and bad debts to the debtor should be excluded from the national income because it will not add any value.  f- Direct taxes should not be considered within the national income. 28/04/2019 Dr. Amr Nazieh

Ch 1: The nature of the national accounting Measuring the National Income It seems that both of national income and national production are two concepts for the same economic activities . 28/04/2019 Dr. Amr Nazieh

Ch 1: The nature of the national accounting National production represents the expense paid from the views of the users of the factors of production, but in the meantime they represents the earning revenues from the views of the owners of the factors of production. 28/04/2019 Dr. Amr Nazieh

Ch 1: The nature of the national accounting Accordingly, national production will be used to measure the national income, after doing some charges. Accordingly the national production should be affected as follows: 28/04/2019 Dr. Amr Nazieh

Ch 1: The nature of the national accounting 1- Items to be excluded from the national production. (1) Indirect taxes. (2) International transfers, which represent donations and gifts from entities. 28/04/2019 Dr. Amr Nazieh

Ch 1: The nature of the national accounting 2- Items to be added to the national production. (1) Donations from the government to the entity. 28/04/2019 Dr. Amr Nazieh

Ch 2: The basic concepts of the National Accounting According to these, national income can be calculated according to the following equation: 28/04/2019 Dr. Amr Nazieh

Ch 2: The basic concepts of the National Accounting National income = National production at market prices + donations - Indirect taxes - internal transfers 28/04/2019 Dr. Amr Nazieh

Ch 2: The basic concepts of the National Accounting National income at market prices = Returns of production factors + Indirect taxes - donations + internal transfers 28/04/2019 Dr. Amr Nazieh

Ch 2: The basic concepts of the National Accounting National income at factor cost = National Production at factor cost = wages + rent + interests + profits 28/04/2019 Dr. Amr Nazieh

Ch 2: The basic concepts of the National Accounting While in case of evaluating national production at market prices, we will find that: National income will not equal National production 28/04/2019 Dr. Amr Nazieh

Ch 2: The basic concepts of the National Accounting From other side, national income can be measured in cases of existing returns from abroad and payments to foreign elements doing work inside as follows: 28/04/2019 Dr. Amr Nazieh

Ch 2: The basic concepts of the National Accounting National income = Returns of factors of production + Returns from doing work abroad - Payments for work achieved inside the country to foreigners 28/04/2019 Dr. Amr Nazieh

Ch 2: The basic concepts of the National Accounting National Spending National spending represents the total individuals and other sectors of the society expenditures during a period of time. This spending will be focused either in: 28/04/2019 Dr. Amr Nazieh

Ch 2: The basic concepts of the National Accounting National Spending (1) Consumption spending. (2) Capital spending (3) Savings, which be specified to increase investments and capital spending 28/04/2019 Dr. Amr Nazieh

Ch 2: The basic concepts of the National Accounting Accordingly, national income will be distributed between consumption and saving, which will be in turn used in investment and adding a new assets to the society. Then: National saving = National Investment 28/04/2019 Dr. Amr Nazieh

Ch 2: The basic concepts of the National Accounting Accordingly, national spending will be measure as follows: 28/04/2019 Dr. Amr Nazieh

Ch 2: The basic concepts of the National Accounting ××× Consumption spending (+) Investments spending which include: ×× Change in the inventory capital construction ×××× Total domestic spending at market prices (×××) (-) Deprecation of capital Net Domestic spending at market prices (-) Indirect taxes (+) Production donation Net domestic spending at factor costs (±) Net exports ( exports - imports ) (±) Net other incomes to production factors Net national spending at factor costs 28/04/2019 Dr. Amr Nazieh

Ch 2: The basic concepts of the National Accounting National Saving National saving represents the difference between national income and current spending. In other terms, national saving will represent the summation of saving of all the society's saving. 28/04/2019 Dr. Amr Nazieh

Ch 2: The basic concepts of the National Accounting National Investment National investment represents the new addition to the national capital within a period of time . 28/04/2019 Dr. Amr Nazieh

Ch 2: The basic concepts of the National Accounting National Investment Accordingly, the purchase of a current project will not represent, a national investment, as, it will not lead to increase the national capital. In the mean time, any increase to the inventory will represent a sort of investment. 28/04/2019 Dr. Amr Nazieh

Ch 2: The basic concepts of the National Accounting In summary, national investment will include: (1) Addition to the inventory. (2) Capital additions, in terms of: the purchase of capital goods. New capital establishments. Importing of new capital goods. 28/04/2019 Dr. Amr Nazieh

Ch 2: The basic concepts of the National Accounting Example :- An economy is including different sectors and the following data are related with two sectors A, B of that economy: (,000.000) 28/04/2019 Dr. Amr Nazieh

Ch 2: The basic concepts of the National Accounting Items 4000 3000 Final products at market prices Factors of production returns: 800 500 Wages 1200 750 Rents 960 605 Interests 230 205 Profits 840 600 Intermediate requirements 100 150 Depreciation of capital 110 70 Indirect taxes 50 Production donations 28/04/2019 Dr. Amr Nazieh

Ch 2: The basic concepts of the National Accounting Further information: (1) Transferred revenues from abroad 600 (2) Transferred revenues to abroad 480 (3) private spending 2000 (4) Public spending 2060 (5)Investments spending 1500 28/04/2019 Dr. Amr Nazieh

Ch 2: The basic concepts of the National Accounting Required:- Calculate the followings: (1)Gross domestic production-at market prices. (1) Net domestic production at market prices. (3) Net national production at factor costs. (4) Net national income at factor costs. (5)Net national spending at factor costs. 28/04/2019 Dr. Amr Nazieh

Ch 2: The basic concepts of the National Accounting Solution:- (1)Gross domestic production-at market prices. Total (B) (A) Items 7000 4000 3000 Final products at market prices ((1440 (840) (600) (-) Intermediate requirements 5560 3160 2400 Total (Gross) domestic production-at market prices 28/04/2019 Dr. Amr Nazieh

Ch 2: The basic concepts of the National Accounting (2) Net domestic production-at market prices. Total (B) (A) Items 5560 3160 2400 Total (Gross) domestic production-at market prices (250) (100) (150) (-) Depreciation of capital 5310 3060 2250 Net domestic production-at market prices 28/04/2019 Dr. Amr Nazieh

Ch 2: The basic concepts of the National Accounting (3) Net national production at factor costs. Total (B) (A) Items 5310 3060 2250 Net domestic production-at market prices (180) 110 70 (-) Indirect taxes 5130 2950 2180 120 50 (+) Production donations 5250 3000 (+) Net transfer (600-480) 5370 Net national production at factor costs 28/04/2019 Dr. Amr Nazieh

Ch 2: The basic concepts of the National Accounting (4) Net national income at factor costs. Total (B) (A) Items 1300 800 500 Wages 1950 1200 750 Rents 1565 960 605 Interests 435 230 205 Profits 5220 3190 2060 Domestic income at factors costs 600 (+) (Internal) Transferred revenues from abroad 5850 480 (-) (external) Transferred revenues (to abroad 5370 Net national income at factor costs 28/04/2019 Dr. Amr Nazieh

Ch 2: The basic concepts of the National Accounting (5)Net national spending at factor costs. Total Items 2000 private spending 2060 Public spending 4060 Total consumption spending 1500 (+) Investment spending 5560 Total Domestic spending at market prices (250) (-) Depreciation of capital 5310 Net Domestic spending at market prices ((180 (-) Indirect taxes 120 (+) Production donations 5250 600 (+) Transferred revenues (Internal) from abroad 480 (-) (external) Transferred revenues (to abroad) 5370 Net national spending at factor costs 28/04/2019 Dr. Amr Nazieh

Ch 2: The basic concepts of the National Accounting (2) The Value add method According to the previous method, we see that the second method is much better than the previous one as it indicates to both individual national production of each entity as well as the total national production. 28/04/2019 Dr. Amr Nazieh