1. Chapter 10 Australia’s National and International Accounts
Copyright  2004 McGraw-Hill Australia Pty Ltd PPTs t/a Economic Principles by Jackson, McIver, Bajada and Hettihewa
Slides prepared by Muni Perumal, University of Canberra
and Jay Bandaralage, Griffith University

2. Learning Objectives
Describe the major components of Australia’s national accounts and the measurement and construction of gross domestic product (GDP).
Develop an understanding of the relationship between the income, expenditure and production measures of GDP.
Discuss the differences between nominal GDP (money GDP) and real GDP.
Copyright  2004 McGraw-Hill Australia Pty Ltd PPTs t/a Economic Principles by Jackson, McIver, Bajada and Hettihewa
Slides prepared by Muni Perumal, University of Canberra
and Jay Bandaralage, Griffith University

3. Learning Objectives (cont.)
Explain how GDP figures can be adjusted to account for changes in the price level.
Explain the limitations of GDP as a measure of social welfare.
Analyse and interpret the nature and structure of the balance of payments (BOP) accounts.
Examine the consequences of the structure of the BOP accounts for achieving external balance.
Copyright  2004 McGraw-Hill Australia Pty Ltd PPTs t/a Economic Principles by Jackson, McIver, Bajada and Hettihewa
Slides prepared by Muni Perumal, University of Canberra
and Jay Bandaralage, Griffith University

4. Why Study National Accounts?
1. Assess and measure performance of economy
2. Gauge health of economy
3. Uncover underlying problems in economy
Copyright  2004 McGraw-Hill Australia Pty Ltd PPTs t/a Economic Principles by Jackson, McIver, Bajada and Hettihewa
Slides prepared by Muni Perumal, University of Canberra
and Jay Bandaralage, Griffith University

5. Why Study National Accounts? (cont.)
4. Plot long-run course of economy over time
5. Provide foundations for public policies
Copyright  2004 McGraw-Hill Australia Pty Ltd PPTs t/a Economic Principles by Jackson, McIver, Bajada and Hettihewa
Slides prepared by Muni Perumal, University of Canberra
and Jay Bandaralage, Griffith University

6. Gross Domestic Product
GDP is the total market value of all final goods and services produced in the economy during a specific period
Measured in money terms and not in physical units
Usually measured over a year
Copyright  2004 McGraw-Hill Australia Pty Ltd PPTs t/a Economic Principles by Jackson, McIver, Bajada and Hettihewa
Slides prepared by Muni Perumal, University of Canberra
and Jay Bandaralage, Griffith University

7. What is included in GDP? Only final goods and services
Intermediate goods are excluded to avoid double counting
To avoid double counting calculate value added
the market value of a firm’s output less the value of intermediate component
Copyright  2004 McGraw-Hill Australia Pty Ltd PPTs t/a Economic Principles by Jackson, McIver, Bajada and Hettihewa
Slides prepared by Muni Perumal, University of Canberra
and Jay Bandaralage, Griffith University

8. What is included in GDP? (cont.)
GDP excludes non-productive transactions
Two major types of non-productive transactions:
purely financial transactions
sales of second-hand goods
Copyright  2004 McGraw-Hill Australia Pty Ltd PPTs t/a Economic Principles by Jackson, McIver, Bajada and Hettihewa
Slides prepared by Muni Perumal, University of Canberra
and Jay Bandaralage, Griffith University

9. Two Approaches to Measuring GDP
Expenditure approach
Measures GDP as the sum of all the expenditures involved in taking that total output off the market
Income approach
Sum of the incomes derived from the production of the GDP
Copyright  2004 McGraw-Hill Australia Pty Ltd PPTs t/a Economic Principles by Jackson, McIver, Bajada and Hettihewa
Slides prepared by Muni Perumal, University of Canberra
and Jay Bandaralage, Griffith University

10. Expenditure Approach GDP is derived as a sum of:
Consumption expenditures by households (C)
Investment expenditures by business (I)
Government purchases of goods and services (G)
Net export expenditures (NX)
GDP = C + I + G + NX
Copyright  2004 McGraw-Hill Australia Pty Ltd PPTs t/a Economic Principles by Jackson, McIver, Bajada and Hettihewa
Slides prepared by Muni Perumal, University of Canberra
and Jay Bandaralage, Griffith University

11. Personal Consumption Expenditure (C)
Includes:
Durable consumer goods
Non-durable consumer goods
Services
Copyright  2004 McGraw-Hill Australia Pty Ltd PPTs t/a Economic Principles by Jackson, McIver, Bajada and Hettihewa
Slides prepared by Muni Perumal, University of Canberra
and Jay Bandaralage, Griffith University

12. Gross Private Investment (I )
Defined as:
Final purchases of machinery, equipment and tools
All building and construction
Changes in stocks (or inventories)
Does not include financial investment or transfer of paper assets, e.g. buying of shares
Copyright  2004 McGraw-Hill Australia Pty Ltd PPTs t/a Economic Principles by Jackson, McIver, Bajada and Hettihewa
Slides prepared by Muni Perumal, University of Canberra
and Jay Bandaralage, Griffith University

13. Gross and Net Investment
Net Private Investment:
Added investment of non-government enterprises that has occurred in the current year
Net Private Investment + Depreciation = Gross Private Investment
Net Private Investment determines whether the economy is expanding, static or declining
Copyright  2004 McGraw-Hill Australia Pty Ltd PPTs t/a Economic Principles by Jackson, McIver, Bajada and Hettihewa
Slides prepared by Muni Perumal, University of Canberra
and Jay Bandaralage, Griffith University

14. Government Purchases (G)
Comprised of:
Final government consumption expenditure
Final government gross fixed capital expenditure
Increases in stocks of government authorities
Copyright  2004 McGraw-Hill Australia Pty Ltd PPTs t/a Economic Principles by Jackson, McIver, Bajada and Hettihewa
Slides prepared by Muni Perumal, University of Canberra
and Jay Bandaralage, Griffith University

15. Net Exports (NX )
Net exports is the difference between the value of exports (X ) and imports (M ), or NX
Copyright  2004 McGraw-Hill Australia Pty Ltd PPTs t/a Economic Principles by Jackson, McIver, Bajada and Hettihewa
Slides prepared by Muni Perumal, University of Canberra
and Jay Bandaralage, Griffith University

16. Income Approach
GDP is calculated as the sum of wages, salaries and supplements, gross operating surpluses, gross mixed income and indirect taxes, less subsidies
Copyright  2004 McGraw-Hill Australia Pty Ltd PPTs t/a Economic Principles by Jackson, McIver, Bajada and Hettihewa
Slides prepared by Muni Perumal, University of Canberra
and Jay Bandaralage, Griffith University

17. Compensation of Employees
Largest component
Payments to suppliers of labour, including:
wages
salaries
superannuation
direct pensions
compensation payments
Copyright  2004 McGraw-Hill Australia Pty Ltd PPTs t/a Economic Principles by Jackson, McIver, Bajada and Hettihewa
Slides prepared by Muni Perumal, University of Canberra
and Jay Bandaralage, Griffith University

18. Gross Operating Surplus (GOS)
Basically rents, interest and profits
Accounts for the fact that rents, interest and profits are difficult to distinguish
Excess of gross output value over sum of:
intermediate consumption
wages
salaries
supplements
Copyright  2004 McGraw-Hill Australia Pty Ltd PPTs t/a Economic Principles by Jackson, McIver, Bajada and Hettihewa
Slides prepared by Muni Perumal, University of Canberra
and Jay Bandaralage, Griffith University

19. Net Operating Surplus GOS less depreciation Depreciation:
The annual charge that estimates the amount of capital equipment used up in each year’s production
Also called capital consumption allowance
Copyright  2004 McGraw-Hill Australia Pty Ltd PPTs t/a Economic Principles by Jackson, McIver, Bajada and Hettihewa
Slides prepared by Muni Perumal, University of Canberra
and Jay Bandaralage, Griffith University

20. Money GDP vs Real GDP
Money GDP is GDP measured in current prices (nominal GDP)
Real GDP is money GDP adjusted for inflation by an implicit price deflator, also called constant price GDP
Copyright  2004 McGraw-Hill Australia Pty Ltd PPTs t/a Economic Principles by Jackson, McIver, Bajada and Hettihewa
Slides prepared by Muni Perumal, University of Canberra
and Jay Bandaralage, Griffith University

21. Inflating and Deflating
Two indices of price adjustment:
Consumer Price Index
measures the price level of a ‘market basket’ of goods and services for a typical family
Implicit Price Deflator
measures the average level of price changes of C, I, G and Net Exports
Copyright  2004 McGraw-Hill Australia Pty Ltd PPTs t/a Economic Principles by Jackson, McIver, Bajada and Hettihewa
Slides prepared by Muni Perumal, University of Canberra
and Jay Bandaralage, Griffith University

22. = Real and Nominal GDP Money GDP Real GDP Price Index (as a decimal)
Copyright  2004 McGraw-Hill Australia Pty Ltd PPTs t/a Economic Principles by Jackson, McIver, Bajada and Hettihewa
Slides prepared by Muni Perumal, University of Canberra
and Jay Bandaralage, Griffith University

23. GDP and Social Welfare
Problems in using GDP as an index of social welfare
Non-market transactions:
Leisure
Quality improvements
Composition and distribution of output
Per capita output
Environmental consequences
The underground economy
Copyright  2004 McGraw-Hill Australia Pty Ltd PPTs t/a Economic Principles by Jackson, McIver, Bajada and Hettihewa
Slides prepared by Muni Perumal, University of Canberra
and Jay Bandaralage, Griffith University

24. Balance of Payments
Reflected in international balance of payments account
Records all transactions between the entities in Australia and those in foreign nations
Copyright  2004 McGraw-Hill Australia Pty Ltd PPTs t/a Economic Principles by Jackson, McIver, Bajada and Hettihewa
Slides prepared by Muni Perumal, University of Canberra
and Jay Bandaralage, Griffith University

25. Balance of Payment Accounts
Two basic subcategories of accounts:
Current account—reflecting current transactions
Capital and financial accounts
Copyright  2004 McGraw-Hill Australia Pty Ltd PPTs t/a Economic Principles by Jackson, McIver, Bajada and Hettihewa
Slides prepared by Muni Perumal, University of Canberra
and Jay Bandaralage, Griffith University

26. Current Account Goods and services Merchandise trade
Balance on merchandise trade
Net services
Balance on goods and services
Copyright  2004 McGraw-Hill Australia Pty Ltd PPTs t/a Economic Principles by Jackson, McIver, Bajada and Hettihewa
Slides prepared by Muni Perumal, University of Canberra
and Jay Bandaralage, Griffith University

27. Current Account (cont.)
Income
Net income
Unrequited transfers
Net unrequited transfers
Balance on Current Account
Copyright  2004 McGraw-Hill Australia Pty Ltd PPTs t/a Economic Principles by Jackson, McIver, Bajada and Hettihewa
Slides prepared by Muni Perumal, University of Canberra
and Jay Bandaralage, Griffith University

28. Capital and Financial Transactions
Capital account
Comprises capital transfers and entries from the acquisition (less disposal) of non-produced, non-financial assets
Copyright  2004 McGraw-Hill Australia Pty Ltd PPTs t/a Economic Principles by Jackson, McIver, Bajada and Hettihewa
Slides prepared by Muni Perumal, University of Canberra
and Jay Bandaralage, Griffith University

29. Capital and Financial Transactions (cont.)
Financial account
The value of Australia’s transactions in domestic and foreign financial assets and liabilities
Copyright  2004 McGraw-Hill Australia Pty Ltd PPTs t/a Economic Principles by Jackson, McIver, Bajada and Hettihewa
Slides prepared by Muni Perumal, University of Canberra
and Jay Bandaralage, Griffith University

30. Capital and Financial Transactions (cont.)
Direct versus Portfolio Investment
Direct investment occurs when investment is made by non-residents in an Australian company, or when Australians make investment in foreign company controlled by Australian interests
Portfolio investment occurs when non-residents buy shares/bonds from Australian companies, or Australians buy shares in foreign companies
Copyright  2004 McGraw-Hill Australia Pty Ltd PPTs t/a Economic Principles by Jackson, McIver, Bajada and Hettihewa
Slides prepared by Muni Perumal, University of Canberra
and Jay Bandaralage, Griffith University

31. External Balance
A level of the current account consistent with the maintenance of existing (or growing) levels of consumption, employment and national output over the long term
Copyright  2004 McGraw-Hill Australia Pty Ltd PPTs t/a Economic Principles by Jackson, McIver, Bajada and Hettihewa
Slides prepared by Muni Perumal, University of Canberra
and Jay Bandaralage, Griffith University

32. Appendix to Chapter 10 Other National Accounting Concepts
Copyright  2004 McGraw-Hill Australia Pty Ltd PPTs t/a Economic Principles by Jackson, McIver, Bajada and Hettihewa
Slides prepared by Muni Perumal, University of Canberra
and Jay Bandaralage, Griffith University

33. Other National Accounting Concepts
National turnover
Gross national expenditure (GNE)
National income (NI)
Domestic factor income (DFI)
Household income (HI)
Household disposable income (DI)
Copyright  2004 McGraw-Hill Australia Pty Ltd PPTs t/a Economic Principles by Jackson, McIver, Bajada and Hettihewa
Slides prepared by Muni Perumal, University of Canberra
and Jay Bandaralage, Griffith University

34. Next Chapter: Aggregate Demand and Aggregate Supply
Copyright  2004 McGraw-Hill Australia Pty Ltd PPTs t/a Economic Principles by Jackson, McIver, Bajada and Hettihewa
Slides prepared by Muni Perumal, University of Canberra
and Jay Bandaralage, Griffith University