National Accounts

National accounts are the systematic framework for measuring the economic activity of a country, including production, income, and expenditure. The accounts provide the basis for the measurement of gross domestic product and other aggregates, and they are compiled according to international standards.

The System

The system of national accounts provides a comprehensive framework for the measurement of economic activity. It records the production of goods and services, the generation and distribution of income, and the use of income for consumption and investment.

The system is based on a set of concepts, definitions, and classifications that are agreed internationally. The standards are maintained by international organisations, and they are periodically updated to reflect changes in the economy and in the statistical methods.

Main Aggregates

The main aggregates of the national accounts include gross domestic product, which measures the value of the goods and services produced in the economy, and gross national income, which measures the income received by the residents of the country.

Other aggregates include consumption, investment, government expenditure, and the trade balance. These aggregates are related by the national accounting identity, which holds that output equals the sum of the components of demand.

The aggregates are measured in both gross and net terms, where the net measures deduct the consumption of fixed capital. The distinction is important, since the gross measures overstate the sustainable level of income.

The Accounts

The system includes several accounts that record different aspects of the economy. The production account records the generation of value added by the industries of the economy. The income account records the distribution of income among the factors and the sectors.

The capital account records the accumulation of assets and the financing of investment, and the financial account records the changes in financial assets and liabilities. The accounts are linked, so that the flows recorded in one account are consistent with those in another.

The accounts are compiled for the economy as a whole and for the institutional sectors, including households, firms, and the government. The sectoral accounts provide information about the behaviour of each sector and about the relationships among them.

Uses

The national accounts are used for a wide range of purposes. They provide the basis for the analysis of the economy, for the design of policy, and for international comparisons.

The accounts are used to measure growth, to assess the state of the economy, and to inform monetary and fiscal policy. They are used to compare the performance of countries and to monitor progress towards development goals.

The accounts are also used in the analysis of specific issues, including the distribution of income, the sustainability of the public finances, and the contribution of different industries to the economy. The framework provides the data that are required for this analysis.

The History of the Accounts

The system of national accounts has its origins in the work of economists in the seventeenth century, who sought to measure the wealth and the income of nations. The modern system was developed in the twentieth century, in response to the need for data to inform policy.

The work of Simon Kuznets and of others in the 1930s and 1940s established the framework for the measurement of national income. The framework was extended and standardised after the Second World War, with the development of international standards.

The standards have been revised periodically to reflect changes in the economy and in the methods of measurement. The revisions have extended the coverage of the accounts, to include services and intangible assets, and have improved the treatment of issues including the measurement of financial services and of the environment.

The Treatment of the Environment

The treatment of the environment in the national accounts has been a subject of growing attention. The standard accounts record the extraction of natural resources as income, without deducting the depletion of the resources, which overstates the sustainable income of the economy.

The system of environmental-economic accounting extends the framework to include the stocks and the flows of natural resources and the services that they provide. The framework is used to measure the depletion of resources and the degradation of the environment, and to adjust the national accounts accordingly.

The measurement is difficult, since the value of environmental assets and of the services that they provide is often not observed in markets. The development of the methods is an active area of research.

The Accounts and Policy

The national accounts are used for the design and the evaluation of policy. The data inform the assessment of the state of the economy and the choice of the instruments of policy.

The accounts are also used in the analysis of specific issues, including the distribution of income, the sustainability of the public finances, and the contribution of different industries. The framework provides the data that are required for this analysis, though it must be supplemented by other sources for some purposes.

The use of the accounts in policy requires attention to their limitations. The accounts are a simplification of the economy, and they do not capture all the aspects that are relevant to welfare. The interpretation of the data must take account of these limitations.

Summary

The national accounts provide the systematic framework for the measurement of economic activity, and they are central to the analysis of the economy and to the design of policy. Their history, their treatment of the environment, and their use in policy inform the understanding of their role and of their limitations.

See also

• Gross Capital Formation
• Net Domestic Product
• Statistics