1 - Slides1.1 - National Accounts

The National Accounts
Macroeconomics I
ECON222
Fall 2017
Macroeconomics I (ECON222) Understanding Macroeconomic Data Fall 2017 1 / 18

Good macroeconomic analysis requires a good understanding of
macroeconomic data

macroeconomic data
Here we will review some key aspects of the National Accounts

macroeconomic data
Statistics Canada data helps us answer many important questions

macroeconomic data
Statistics Canada data helps us answer many important questions
For example, do Canadians save enough?

A worrying picture ...

The Circular Flow

The Fundamental Identity
Provided they are correctly measured, the following must hold:
Total Total Total

Production Income Expenditure

The Fundamental Identity
Provided they are correctly measured, the following must hold:
Total Total Total

Production Income Expenditure
We will use the symbol Y to represent these totals (GDP)

GDP: The Product Approach
the market value of nal goods and services
Y =
newly produced within a given period of time
Not all goods and services have a market value

Y =

,! underground economy

Y =

,! public services

Y =

,! public services
,! home production

Y =

,! public services
,! home production
The value of intermediate goods/services is not included

Y =

,! public services
,! home production

,! goods/services produced by one sector and used by another within the
period

Y =

,! public services
,! home production

period
,! GDP measures only value-added

Y =

,! public services
,! home production

period
Capital goods are not intermediates

Y =

,! public services
,! home production

period
Capital goods are not intermediates

,! inventories are not intermediates
GDP: The expenditure approach
the total spending on nal goods and services

Y =
The income-expenditure identity:
Y = C + I + G + NX


Y =
Y = C + I + G + NX
,! C includes foreign goods but not housing


Y =
Y = C + I + G + NX

,! I includes new housing and government investment


Y =
Y = C + I + G + NX

,! G does not include transfers (TR) or interest payments (INT )


Y =
Y = C + I + G + NX

,! G does not include transfers (TR) or interest payments (INT )
,! NX = X M can be positive or negative

GDP: The income approach
all income received from domestic production

Y =
within a given period of time
indirect taxes (e.g. HST) represents income to the government

GDP: The income approach
all income received from domestic production

Y =
within a given period of time
indirect taxes (e.g. HST) represents income to the government

depreciation is a factor cost which must be covered by income

Simple Example: two rms
Apple Inc Transactions

Wages paid to AppleInc employees 15,000
Taxes paid to government 5,000
Revenues received from the sale of 35,000
Apples sold to public 10,000
Apples sold to Juice Inc 25,000
Juice Inc Transactions

Wages paid to Juice Inc employees 10,000
Taxes paid to government 2,000
Apples purchased from Apple Inc 25,000
Revenues received from juice sales 40,000

Gross national product
A measure of overall income that adds net factor payments from

abroad (NFP):
GNP = Y + NFP

Gross national product
A measure of overall income that adds net factor payments from

abroad (NFP):
GNP = Y + NFP
GNP and GDP are similar for large, rich countries, but not for small,
poorer ones

Private disposable income
The amount of income the private sector has to spend:
Yd = Y + NFP + TR + INT T

Relatedly, net government revenue:
NGR = T TR INT

Relatedly, net government revenue:
NGR = T TR INT
Adding these together yields GNP

The Importance of Savings
GDP does not measure a nations wealth

GDP is a ow per period, whereas wealth is a stock:
National Domestic Foreign Foreign

= +
Wealth Capital Stock Assets Liabilities

GDP is a ow per period, whereas wealth is a stock:
National Domestic Foreign Foreign

= +
Wealth Capital Stock Assets Liabilities
National wealth depends on how much an economy saves and invests

per period

Measures of Saving
Private saving:
Sp = Y
| + NFP {z+ TR + INT}
T C
Yd

Measures of Saving
Private saving:
Sp = Y
T C
Yd
Government saving:
Sg = T
| TR
{z INT} G
NGR

Measures of Saving
Private saving:
Sp = Y
T C
Yd
Government saving:
Sg = T
| TR
{z INT} G
NGR
,! Sg > 0 ) budget surplus

Measures of Saving
Private saving:
Sp = Y
T C
Yd
Government saving:
Sg = T
| TR
{z INT} G
NGR
,! Sg < 0 ) budget decit

Measures of Saving
Private saving:
Sp = Y
T C
Yd
Government saving:
Sg = T
| TR
{z INT} G
NGR
,! Sg < 0 ) budget decit
National saving:
S = Sp + Sg
= Y + NFP C G

How is private saving used?
Substituting for Y , we get
S = C + I + G + NX + NFP C G
= I + CA
where the current account balance is
CA = NX + NFP

S = C + I + G + NX + NFP C G
= I + CA
CA = NX + NFP
It follows that private saving can be expressed as
Sp = I Sg + CA

S = C + I + G + NX + NFP C G
= I + CA
CA = NX + NFP
It follows that private saving can be expressed as
Sp = I Sg + CA
Private saving is used for investment, to cover budget decits and to

nance the current account

Do Canadians save enough?
The household savings rate is

household net saving S
= h
household disposable income Yh


= h
,! this has declined substantiatially since the 1980s


= h
But, the private savings rate,

Sp S + Sf
= h
Yd Yh + Yf
has not fallen as much why?


= h
But, the private savings rate,

Sp S + Sf
= h
Yd Yh + Yf
has not fallen as much why?
And the national savings rate S /Y remains above 0.2 why?


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The National Accounts

Macroeconomics I (ECON222) Understanding Macroeconomic Data Fall 2017 1 / 18

Macroeconomics I (ECON222) Understanding Macroeconomic Data Fall 2017 2 / 18

Here we will review some key aspects of the National Accounts

Macroeconomics I (ECON222) Understanding Macroeconomic Data Fall 2017 2 / 18

Here we will review some key aspects of the National Accounts

Statistics Canada data helps us answer many important questions

Macroeconomics I (ECON222) Understanding Macroeconomic Data Fall 2017 2 / 18

Here we will review some key aspects of the National Accounts

Statistics Canada data helps us answer many important questions

For example, do Canadians save enough?

Macroeconomics I (ECON222) Understanding Macroeconomic Data Fall 2017 2 / 18

Macroeconomics I (ECON222) Understanding Macroeconomic Data Fall 2017 3 / 18

Macroeconomics I (ECON222) Understanding Macroeconomic Data Fall 2017 4 / 18

Provided they are correctly measured, the following must hold:

Total Total Total

Macroeconomics I (ECON222) Understanding Macroeconomic Data Fall 2017 5 / 18

Provided they are correctly measured, the following must hold:

Total Total Total

We will use the symbol Y to represent these totals (GDP)

Macroeconomics I (ECON222) Understanding Macroeconomic Data Fall 2017 5 / 18

Not all goods and services have a market value

Macroeconomics I (ECON222) Understanding Macroeconomic Data Fall 2017 6 / 18

Not all goods and services have a market value

Macroeconomics I (ECON222) Understanding Macroeconomic Data Fall 2017 6 / 18

Not all goods and services have a market value

Macroeconomics I (ECON222) Understanding Macroeconomic Data Fall 2017 6 / 18

Not all goods and services have a market value

Macroeconomics I (ECON222) Understanding Macroeconomic Data Fall 2017 6 / 18

Not all goods and services have a market value

The value of intermediate goods/services is not included

Macroeconomics I (ECON222) Understanding Macroeconomic Data Fall 2017 6 / 18

Not all goods and services have a market value

The value of intermediate goods/services is not included

Macroeconomics I (ECON222) Understanding Macroeconomic Data Fall 2017 6 / 18

Not all goods and services have a market value

The value of intermediate goods/services is not included

Macroeconomics I (ECON222) Understanding Macroeconomic Data Fall 2017 6 / 18

Not all goods and services have a market value

The value of intermediate goods/services is not included

Capital goods are not intermediates

Macroeconomics I (ECON222) Understanding Macroeconomic Data Fall 2017 6 / 18

Not all goods and services have a market value

The value of intermediate goods/services is not included

Capital goods are not intermediates

the total spending on nal goods and services

The income-expenditure identity:

Macroeconomics I (ECON222) Understanding Macroeconomic Data Fall 2017 7 / 18

the total spending on nal goods and services

The income-expenditure identity:

,! C includes foreign goods but not housing

Macroeconomics I (ECON222) Understanding Macroeconomic Data Fall 2017 7 / 18

the total spending on nal goods and services

The income-expenditure identity:

,! C includes foreign goods but not housing

Macroeconomics I (ECON222) Understanding Macroeconomic Data Fall 2017 7 / 18

the total spending on nal goods and services

The income-expenditure identity:

,! C includes foreign goods but not housing

Macroeconomics I (ECON222) Understanding Macroeconomic Data Fall 2017 7 / 18

the total spending on nal goods and services

The income-expenditure identity:

,! C includes foreign goods but not housing