1. General features of the System of National Accounts
CONTRACTOR IS ACTING UNDER A FRAMEWORK CONTRACT CONCLUDED WITH THE COMMISSION

2. Overview What is the economy? Accounting framework
Economic activities covered
Sequence of accounts

3. What is the economy?

4. A picture of the economy
picture of the economy.pptx

5. What is the economy?

6. What is the economy?
The economy is the collection of institutions and people that combine together through market transactions to produce a flow of goods and services to be consumed.
The major players (sectors) are business, households, government, and the rest of the world

7. Points to note Arrows show money flows
“Ins” must equal “outs” for every sector
For every transaction, the two exchanging will recognise the same value for the same product at the same time

8. Points to note What is an institutional unit?
An entity capable of owning goods and assets, incurring financial liabilities, and engaging in economic activity such as production and consumption, under its own control and in its own right
Examples are

9. Institutional units - examples
Corporations – financial and non-financial
Households
Government units
Non-profit making bodies serving households

10. Points to note Units can be combined into sectors
Exchanges are something for something (usually money for a good or service
Exchanges are production, consumption
Stocks are levels, flows are exchanges

11. Points to note Transfers are something for nothing (economically)
Change in inventories are everywhere
Stocks are needed to ensure a smooth process of production and consumption
The ESA defines a production boundary – all economic production occurs within it.

12. The production boundary
Production is activity of an institutional unit that uses inputs of labour, capital assets and goods and services to produce outputs of goods and services.
Included
Commercial production
Own account production of goods for own use
Own account production of ownership of dwellings
Domestic staff services (labour only)

13. The production boundary
Also included are
Own account production of some goods by households e.g. agricultural produce
Excluded are
Services within a household
Garden produce etc.

14. Points to note Valuation - Producer prices or purchase prices
Imputations
Depreciation

15. Valuation - Producer prices or purchase prices
Producer prices apply at the “factory gate”
Purchaser prices are those paid by the final consumer
The difference is expenditure tax (e.g. VAT) and trading margins for goods
Basic prices are producer prices less production taxes linked to the amount of production

16. Basic prices The special case of local business taxes
These taxes are paid to local councils, not linked to production
They are often flat fees for carrying out different kinds of business, or related to the value of the premises in which the business is conducted
These taxes are not removed from value added when calculating production.

17. Imputation
Imputation is when a transaction or other flow is assumed to take place, even although none does
Example – Ownership of dwellings. An occupier of a house is assumed to pay themselves a rent equivalent to that payable for a similar dwelling in the open market. This ensures that GDP is more comparable between economies with vastly different levels of dwelling owner-occupation

18. Final consumption of fixed capital
Business capital assets are not consumed at the moment of purchase.
They last a long times, and are used up gradually
In order to understand how the economy is working, it is necessary to estimate how long assets last, and how quickly the suffer wear and tear, and obsolescence.

19. Points to note
GDP – three measures
Production
Expenditure
Income

20. GDP P = Production – interm consum’n
= (Final output + Pint) – (Cint + Mint)
= Final output – Mint as (Pint = Cint)
= (C + G + GCF + X - Mf ) – Mint
= C + G + GCF + X – M
= GDP E less expenditure taxes

21. Points to note What goes in must come out
Final output = Incomes + Mint
But GDP P = Final output – Mint
So Incomes = GDP P
GDP I = GDP P

22. Who needs the economy to be measured?

23. Who needs the economy to be measured?
1 Householders (rent or buy a house?) 2 Business (invest now or later) 3 Government (economic planning, investment subsidies, infrastructure strategies, international comparison) 4 EU – planning, allocating regional subsidies, determining budget contributions, monitoring fiscal discipline (deficit and debt measures)

24. Who needs the economy to be measured?
UN, World Bank, OECD – international economic measures for analysis, development lending programmes.
Central Banks – interest rate setting – balancing growth against inflation
The media – analysis and interpretation
Democracies – who will deliver economic benefits?

25. Thank you for your attention
CONTRACTOR IS ACTING UNDER A FRAMEWORK CONTRACT CONCLUDED WITH THE COMMISSION