Doctoral Program and Advanced Degree in Sustainable Energy Systems
Doctoral Program in Mechanical Engineering
Ecological Economics
Week 10
Tiago Domingos
Assistant Professor
Environment and Energy Section
Department of Mechanical Engineering
Assignments
• Welfare (transitivity)
Person A
X
Y
Z
M
W
Person B
1
3
2
5
4
Person C
5
4
2
1
3
Person D
2
5
3
4
1
Person E
4
2
1
3
5
Sum
2
5
4
1
3
• Z is preferred to X and X is preferred to Y and Z is
preferred to Y.
14
19
12
14
16
National Accounts
Rui Mota
rmota@ist.utl.pt
Tel. 21 841 9442. Ext. 3442
Tiago Domingos
May 2009
National Accounts
• System of National Accounts is a comprehensive accounting framework
within which economic data can be compiled and presented in a format
that is designed for purposes of economic analysis, decision-taking and
policy-making.
• Integrates a set of macroeconomic accounts, balance sheets and tables
based on a set of internationally agreed concepts, definitions,
classifications and accounting rules.
• Accounts compiled for a succession of time periods, thus providing a
continuing flow of information, indispensable for the monitoring,
analysis and evaluation of the performance of an economy over time.
Aggregation
• 5 Sectors:
– Households
– Firms
– Financial Intermediaries (banks, …)
– Governments (national and local)
– Rest Of the World (ROW)
• 4 Markets (Supply and Demand):
– Goods and services
– Resources (labor, land and capital)
– Money (loanable funds)
– Foreign exchange
Circular flow of income
Households
€
Factor
payments: Y
Factors
€
Expenditures: C
Output
2
1
3
Firms
• Factors: Labor, Land, Capital
• Factor payments: Wage, Rents, Interests, Profits – become income.
• Expenditures: on goods and services (output)
• 1 – Income approach: Y = Wage + Rent + interest + operating surplus
• 2 – Output approach: Y = market value of all produced output (Σ VA)
• 3 – Expenditure approach: Y = C
Circular flow of income
ΔGov
S
FI
Households
C
G
Gov.
Lend
Borrow
Tr
X
T
M
Y
ROW
Firms
I
• Balance to:
– Households: Y - Tnet = C + S, Tnet = T- Tr
– Firms: Y = C + I + G + X - M
– Government: ΔGov = Tnet - G
– FI: S + ΔGov + B - L = I
– ROW: X - M = L - B
- Market for outputs
National Accounts Identity
C
I
X
M
Main Aggregates
National
(Residence)
- Primary income
flows to ROW
Product / Income
+ Primary income flows
from ROW
Domestic
(Territory)
Net
+ Consumption Fixed
Capital (CFC)
Aggregate X
- Consumption of Fixed
Capital (CFC)
Gross
X – Domestic produc, Income, Saving, Disposable income, ...
Domestic Product vs. National Income
• GNI = GDP + Y’RM . Where Y’RM = Net income payable to non-resident
units for production factors.
Domestic Product vs. National Income
• The value added of a firm owned by Portuguese residents and
functioning on our economic territory is part of the Portuguese GDP and
GNI.
• The wage (or other factor payments) of a resident that during 6 months
worked to a firm in Spain is a part of Spanish GDP and Portuguese GNI.
• The operating surplus (profits) – capital remuneration of a firm located in
Portugal but owned by Germans – sent to Germany, is part of the
Portuguese GDP and the German GNI.
• The income earned by Portuguese emigrants working abroad as residents
is not part of the Portuguese GDP and GNI.
Main Aggregates
Subtract CFC
GDP
Net Domestic Product (NDP)
+ Primary income flows from ROW
- Primary income flows to ROW
= Gross National Income (GNI)
= Net National Income (NNI)
+ Current net transfers from ROW
= Gross Disposable Income (GDI)
= Net Disposable Income (NDI)
- Final consumption (Private and Government)
= Gross Saving (S)
= Net Saving (NS)
Domestic Product vs. National Income
Domestic vs National [euros 2000]
180
160
140
Milliards euros
120
100
80
60
PT Domestic
Ireland Domestic
40
PT National
Ireland National
20
0
1960
1965
1970
Source: AMECO database
1975
1980
1985
1990
1995
2000
2005
Gross Product vs. Net Product [euros 2000]
160000
140000
Million euros
120000
100000
GDP
80000
NDP
60000
40000
20000
0
1990
Source: AMECO database
1995
2000
2005
Gross/Net Saving in Portugal [euros 2000]
25000
Gross national saving
Net nation saving
20000
Net Investment
Million euros
15000
10000
5000
0
1960
1965
-5000
-10000
Source: AMECO database
1970
1975
1980
1985
1990
1995
2000
2005
Temporal Comparison - Real vs Nominal
• What part of the change in national accounts aggregates at current prices
stems from a change in the quantities produced and what part stems from
a change in prices?
Nominal GDP in:
Item
- 2007, €200
2007
- 2008, €575
Quantity
Price
Bread
100
€1.00
Real GDP in 2007 prices:
Butter
20
€5.00
- 2007, €200
2008
Bread
160
€ 0.50
Butter
22
€ 22.50
- 2008, €270
Price Level
GDP Deflator
Price Level and GDP deflator
• Nominal and real GDP are calculated as shown above.
• GDP Deflatoryear x = (Nominal GDPyear x ÷ Real GDPyear x )  100.
Year
Nominal GDP
Real GDP
GDP deflator
2007
€200
€200
100
2008
€575
€250
230
• Nominal GDP increases because production increases and because prices
increase (Inflation).
• Use the GDP deflator to take out the effect of inflation and reveal real GDP.
• The Base year for current SNA is 2000.
• Inflation rate = rate of change of price level, 130% = (230-100)/100*100
Real vs. Nominal (Portugal)
200
Milliards euros
180
160
Gross domestic product at 2000
market prices
140
Gross domestic product at
current market prices
120
100
80
60
40
20
0
1960
1965
Source: AMECO database
1970
1975
1980
1985
1990
1995
2000
2005
Price Level and CPI
• Consumer Price Index (CPI)
– It is based on a fixed (changes every 5 years) basket of goods that are
normally an important part of households’ consumption.
• 1 – Fix the Basket - which prices are most important to the typical consumer? Put
weights by surveying consumers and finding the basket of goods and services that the
typical consumer buys.
• 2 – Find the prices for each good and service in the basket.
• 3 – Compute the basket’s cost (price * quantity)
• 4 – Choose a base year and compute the CPI Formula
• 5 – Compute inflation as the rate of change in CPI
CPI and Inflation
GDP deflator vs CPI
• Both reflect the current level of prices relative to the level of prices in the
base year.
GDP Deflator
CPI
-Prices of all goods and
services produced
domestically.
-Prices of all goods and
services bought by
consumers.
- Compares the price of
currently produced goods.
- Compares a fixed basket
of goods and services.
GDP deflator vs CPI (Portugal)
Inflation
35
Oil Price shock, 1973
30
25
20
%
CPI
GDP Deflator
15
10
5
0
1964
1969
1974
Source: AMECO database and UN data
1979
1984
1989
1994
1999
2004
Growth accounting: Total Factor Productivity
Y Y  gY
• Breakdown observed growth in GDP,
associated to changes in factors of production.
into components
Y (t )  F  K (t ), A(t ), L(t ) 
• Output growth only happens due to growth in productive inputs,
including technology.
• Technology progress is measured by indirectly, i.e., growth not attributed
to changes in observable inputs.
• Solow refered to the residual as Total Factor Productivity (TFP)
K (t )
L(t )
gY (t )   YK (t )
  YL (t )
 R(t )
K (t )
L(t )
 YX 
F () X
X Y
R(t )   YA
A
A
Total Factor Productivity
K (t )
L(t )
gY (t )   YK (t )
  YL (t )
 R(t )
K (t )
L(t )
• Information on:
–
–
–
–
Gross fixed capital formation
Gross fixed capital stock
Factor input compensation shares
Growth in ICT capital services (computers, communication equipment and
software)
– Growth in Non-ICT capital services (non-IT equipment, non-residential
structures and transport equipment)
– Growth in output (GDP)
– Growth in labour input (Total hours worked, annual hours worked per
worker and total number of workers)
• To obtain growth in total factor productivity
Total Factor Productivity Portugal
0,14
TFP growth
0,12
GDP growth [€2000]
0,1
0,08
0,06
0,04
0,02
0
1961
1966
1971
-0,02
-0,04
-0,06
Source: AMECO database
1976
1981
1986
1991
1996
2001
2006