Towards a national accounting system, Macroeconomics

Assignment Help:

 

TOWARDS A NATIONAL ACCOUNTING SYSTEM 

A real life modern economy is a very complex structure consisting of millions of units engaged in a variety of economic transactions. There are organizations which produce and distribute a variety of goods and services. There are households which consume goods and services, offer their labor services to productive organizations and make their savings available for investment. There are financial institutions which act as intermediaries between savers and investors. There are state and central governments who impose and collect taxes and provide a range of public services. Transactions take place among the units within an economy as well as with foreigners in the process of production and consumption of goods and services, creation and transfer of physical and financial assets, production of public goods and services, etc. National accounts attempt to provide a summary picture of the entire gamut of these economic transactions.

Obviously, to be useful at all, the national accounts cannot go down to the level of individual units. Substantial aggregation must be done over the units and detailed transactions so that national accounts can be cast in terms of a manageable number of macroeconomic aggregates. In the design and construction of these aggregates, the criterion is that the accounts must enable us to identify and estimate important economic relationships. A general principle is that economic activities subject to similar behavioral determinants should be aggregated together.

Corresponding to the corporate accounts, three types of accounts can be constructed for the national economy. The National Income Accounts deal with flows of goods and services during a year; the flow of funds accounts depict changes in financial assets and liabilities of the various sectors of the economy. (A sector is a collection of units engaged in similar economic activities.) Finally, the national balance sheet will reflect the nation's wealth at a point of time. A fourth type of accounts called Input-Output accounts depict the flows of goods and services between the various productive and household sectors of the economy.

In this note we will focus on National Income and Product Accounts often simply called 'National Accounts'. We will begin with a very simple hypothetical economy and add complications one at a time finally approaching an accounting system for a real-life economy. 


Related Discussions:- Towards a national accounting system

Market Demand., Ask question #The market demand for brand X has been estima...

Ask question #The market demand for brand X has been estimated as Qx=1500-3Px-0.05I-2.5Py+7.5Pz Where Px is the price of brand X, I is per-capita income, Py IS the price of brand Y

Important consideration in short run factor, Which of the following is an i...

Which of the following is an important consideration in short run factor-proportions trade analysis? a. Comparative advantages only occur in theory. b. Specific factors are a

Relation between nominal interest rate and inflation, Relation between nomi...

Relation between nominal interest rate, real interest rate and inflation If we denote the nominal interest rate by R, the real rate by r and the expected inflation by p e then

Firm wants to sell goods, If a firm wants to sell goods more often, would t...

If a firm wants to sell goods more often, would they prefer to produce a high quality good that will not wear out or one that will wear out faster. For example, what is the 'life e

Foreign trade, how can a country maintain equilibrium GDP with foreign trad...

how can a country maintain equilibrium GDP with foreign trade?

Why do some countries have a low real per capita income, Why do some countr...

Why do some countries have a low real per capita income? Low real per capita income considers being largely due low productivity (i.e., output per worker) of low valued added

Price results in the efficient quantity, The Price ceiling is the law that ...

The Price ceiling is the law that sets a maximum price below the equilibrium market price, but a price floor is the law that sets a maximum price above the market equilibrium price

Right to sell blood, Singer suggests that although the right to sell blood ...

Singer suggests that although the right to sell blood does not threaten the formal right to give blood, it is incompatible with "the right to give blood, which cannot be bought, wh

Interest rate effect, Could you explain the "interest rate effect" in terms...

Could you explain the "interest rate effect" in terms of the slope of a curve?

Write Your Message!

Captcha
Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd