1. MACROECONOMIC PROBLEMS. NATIONAL ACCOUNTS SYSTEM
MACROECONOMIC FLOATS SCHEME
GROSS DOMESTIC PRODUCT

2. Main macroeconomic problems
The Circular Flow of Income and Product. Foreign sector and monetary market
National accounts system
Counting of Gross Domestic Product

3. Main macroeconomic problems
Macroeconomics is about the ‘big picture’; it describes and explains the working of the whole economy. The study of whole economic systems aggregating over the functioning of individual economic units. It is primarily concerned with variables which follow systematic and predictable paths of behavior and can be analyzed independently of the decisions of the many agents who determine their level. More specifically, it is a study of national economies and the determination of national income.
Macroeconomics is the branch of economics concerned with aggregates, such as national income, consumption, and investment

5. Macroeconomics is about the ‘big picture’; it describes and explains the working of the whole economy.
Macroeconomics is concerned with the behavior of total income and total output for the whole economy;
Macroeconomics studies total production and consumption, investment in raising productive capacity, and how much a country imports and exports.
Macroeconomics studies the employment and unemployment rates for the economy as a whole. What causes an unemployment and what policy should government follow to avoid the high unemployment rate.
Macroeconomics also tries to explain the behavior of the level of prices of all goods and services taken together. The change in this price level from one period to another is known as the inflation rate. Macroeconomics helps us tо understand the causes of inflation and how this matter can and should be influenced by government through monetary and fiscal policy.
Macroeconomics is concerned with government policy making, the use of taxes and transfers, the level of government expenditure, and control of the money supply
Macroeconomics uses aggregates in its analysis.

9. 2. The Circular Flow of Income and Product€ €

11. € €

12. € €

14. named also leakages

17. 3. System of National Accounts The System of National Accounts (SNA) is the internationally agreed standard set of recommendations on how to compile measures of economic activity. In addition, the SNA provides an overview of economic processes, recording how production is distributed among consumers, businesses, government and foreign nations.

18. 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.

19. The main SNA usually include the following accounts for the economy as a whole and its main economic actors:
Current accounts:
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.

20. Capital accounts, which record the net accumulation, as the result of transactions, of non-financial assets; and the financing, by way of saving and capital transfers, of the accumulation. Net lending/borrowing is the balancing item for these accounts
Financial accounts, which show the net acquisition of financial assets and the net incurrence of liabilities. The balance on these accounts is the net change in financial position.
Balance sheets, which record the stock of assets, both financial and non-financial, and liabilities at a particular point in time. Net worth is the balance from the balance sheets (United Nations, 1993).
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. As GDP is tied closely to the national accounts system, 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, some analysts have advocated for either a change in the makeup of national accounts or adjustments in the formulation of public policy

21. National accounts aim to describe the economic activity (measurable in monetary terms) of every unit of a national economy. The basic concepts of the SNA are used to analyze and aggregate the numerous aspects of the elementary actions in the economy, and are capable of answering important questions:
Who takes action in the economy?
What do they do?
Why do they take action?
How are the actions known?

24. SNA distinguishes three main categories:
1. Corporations (financial and non-financial) are entities capable of generating profit or other financial gain for their owners, are recognized by law as separate legal entities from their owners who enjoy limited liability and are set up for purposes of engaging in market production. Under this category are included legally constituted corporations (such as incorporated enterprises, public limited companies, public corporations, private companies, joint-stock companies, limited liability companies, limited liability partnerships, etc.), national resident units and quasi-corporations (an unincorporated enterprise owned by a resident institutional unit that has a complete set of accounts and is operated as if it were a separate corporation and whose de facto relationship to its owner is that of a corporation to its shareholders).
2. Non-profit institutions (NPIs) that are created for the purpose of producing goods and/or services but whose status does not permit them to be a source of income, profit or other financial gain for the units that establish, control or finance them.
3. Government units are legal entities established by political processes. They have legislative, judicial or executive authority over other institutional units within a given area.

25. How? Accounting rules
Transactions of economic agents (who), of their actions (what) undertaken for different purposes (why) are recorded in the SNA according to clear rules (how). These rules are related to the content of institutional units resources and uses, the valuation of transactions, the way and the time of recording them in a defined structure.
The accounting model
National accounts are built according to the accounting model used in business accounting (see Building the System of National Accounts - administrative sources). The two accounting systems have the following similarities:
Two-side presentationThe left side of a ‘T’ business account is called debit and the right side credit;
In national accounts, the following terms are used:
Resources for transactions which add to the amount of economic value of a unit or a sector are presented on the right side of the account;
Uses for transactions that reduce the amount of economic value of a unit or sector are shown on the left side of the current account.

26. Double-entry principle
Business accounting is based on the principle of double-entry, whereby one transaction requires two entries, in principle one credit and one debit;
National accounts reflect mutual economic relationships between different institutional units based on ‘horizontal’ double entry. This means that if an institutional unit provides something to another institutional unit, the accounts of both units will show the transaction: as a resource in the accounts of one unit and as a use in the accounts of the other. As for example, the compensation of employees paid by different economic units should be equal to the sum received by employees.
In the accounts of an institutional unit, each transaction must be recorded twice, as a resource (or a change in liabilities) and as a use (or a change in assets).This is the so-called ‘vertical’ double-entry. Thus, the total of the transactions recorded as resources (or changes in liabilities) and the total of the transactions recorded as uses (or changes in assets) are equal, enabling consistency checking. Based on the previous example, the compensation of employees is recorded as a resource for the household sector and as a use for other sectors. The simultaneous application of both the vertical and horizontal double-entry bookkeeping results in quadruple-entry bookkeeping, that is the accounting system underlying the recording in the SNA (financial accounts must be compiled to take full practical advantage of the quadruple-entry principle).

28. 4. Gross Domestic Product
Gross domestic product (GDP) is the total value of output produced in a given time period
GDP includes the output of foreign owned businesses that are located in a nation following foreign direct investment. For example, the output produced at the Volkswagen car plant in Kaluga contributes to the Russia’s GDP
There are three ways of calculating GDP - all of which in theory should sum to the same amount:

30. National Output = National Expenditure (Aggregate Demand) = National Income
The Expenditure Method - Aggregate Demand (AD)
The full equation for GDP using this approach is
GDP = C + I + G + (X-M) 
where
C: Household spending on goods and services
I: Capital Investment spending (without securities!!!)
G: Government spending (without transfers!!!)
X: Exports of Goods and Services
M: Imports of Goods and Services
Economists often name (X-M) as Net Exports (NX)

31. Exercise 1
GDP is 250 billion Euros. Household spending on goods and services is 156 billion Euros, Capital Investment spending is 50 billion Euros, Net Exports of Goods and Services is 5 billion Euros.
Government spending - ?

32. Exercise 1 GDP = С + I + G + NX
250 billion Euros = 156 billion Euros + 50 billion Euros + G + 5 billion Euros
G = 250 – 156 – 50 – 5 = =
39 billion Euros

33. The Income Method – adding together factor incomes
GDP is the sum of the incomes earned through the production of goods and services. This is:
Income from people in jobs and in self-employment (e.g. wages and salaries and bonuses and other compensation payable to employees)
+ Profits of private sector businesses
+ Rent income from the ownership of land
+ Taxes on products and production payable to the government
+ Depreciation of capital assets (and sums for amortization) =
Gross Domestic product (by sum of factor incomes)
So,
GDP = NI (W + R + i + PR) + Indirect Business Taxes + Depreciation
Only those incomes that are come from the production of goods and services are included in the calculation of GDP by the income approach.

34. The Income Method – adding together factor incomes
We exclude:
Transfer payments e.g. the state pension; income support for families on low incomes; the Jobseekers’ Allowance for the unemployed and other welfare assistance such housing benefit and incapacity benefits
Private transfers of money from one individual to another
Income not registered with the tax authorities Every year, billions of Euros worth of activity is not declared to the tax authorities. This is known as the shadow economy (or black market).
Published figures for GDP by factor incomes will be inaccurate because much activity is not officially recorded – including subsistence farming and barter transactions

35. Exercise 2
Wages are 197 billion Euros, Rental income is 75 billion Euros,  Interest income is 15 billion Euros. Business profits are 200 billion Euros. 
Find GDP if the depreciation is 76 billion Euros and indirect taxes are 67 billion Euros

36. Exercise 2
GDP = NI (W + R + i + PR) + Indirect Business Taxes + Depreciation so
GDP = ( ) = 630 billion Euros

37. Gross Value Added and Contributions to a nation’s GDP
There are three main wealth-generating sectors in an economy – manufacturing and construction, primary (including oil& gas, farming, forestry & fishing) and a wide range of service-sector industries.
This measure of GDP adds together the value of output produced by each of the productive sectors in the economy using the concept of value added. .
Value added is the increase in the value of goods or services as a result of the production process
Value added = value of production - value of intermediate goods

38. GDP by Value Output method
500€
100 €
200€
GDP = 100€ + 200€ € = 800€

39. GDP by Value Output method
500 €
100€
200 €
300 €
100 €
GDP = 100 € € € = 500 €

40. Exercise 3
The primary value of raw materials is 78 million Euros.
The value of output at the intermediate step of production is 325 million Euros. At the final stage the part of Value added at this stage is 257 million Euros.
GDP - ?

41. GDP = 325 million Euros + 257 million Euros = 582 million Euros
Exercise 3
Primary Value = 78 million Euros.
The Value added in the intermediate stage is
325 million Euros – 78 million Euros = 247 million Euros
At the final stage we are to summarize
GDP = 325 million Euros million Euros = 582 million Euros or
GDP = = 582 million Euros.

43. HOMEWORK
Revise formulas for calculating GDP