CEH 553

INDICATORS OF ECONOMIC
PERFORMANCE

S.I.K. AMPADU
January 2015
 WHAT IS NATIONAL INCOME
ACCOUNTING?
v  A system which measures the level of economic
activity in an economy.

v  The national income accounting system allows

us to assess the performance of the economy
as a whole through:
v  GNP or NI as a measure of national economic
performance and
v  GDP as a measure of domestic economic
performance.
 METHODS OF MEASUREMENT

•  Three ways of measuring amount of economic activity in

an economy- by valuing:

•  the total output of goods and services produced

•  the total factor income or earnings

•  the total spending on goods and services.

•  All the three methods give the same estimate of total

economic activity

•  In practice, however the different methods may give

slightly different estimates because of problems of data
collection
 DEFINITIONS-GDP AND GNP
•  Gross domestic product
(GDP)
v  the value of output of the
factors of production
produced during a given
period of time
v  with the factors of
production located in the
domestic economy.
v  GDP at factor cost = GDP at
market prices - (Indirect taxes
– Subsidies) = GDP at market
prices - Net Indirect taxes
•  Gross National Product
(GNP)
§  total income earned by
domestic citizens or
nationals regardless of the
country in which their factor
services were supplied
§  GNP = GDP + Net property
income from abroad (NPA)
§  NPA is the income earned
on labour and property
owned by the country's
residents in foreign countries
DEFINITIONS-NET NATIONAL INCOME
•  National Income (NI) is the economy's net national product
at factor cost or net national income at factor cost.

•  Net National Product (NNP) = GNP - Depreciation

•  Depreciation or capital consumption allowance

measures the rate at which the value of the existing capital
stock declines per period as a result of wear and tear or of
obsolescence.

•  NI measures the amount of money the economy has available

for spending on goods and services after setting aside
depreciation.

•  Since depreciation is rather difficult to measure and

consequently may be treated differently in different countries
or during different periods, in practice, most economists make
comparisons using GDP.
 SUMMARY OF NATIONAL INCOME
ACCOUNTING
Net Property Net Property
income from income from
abroad, NPA abroad, NPA Depreciation
Government
spending, G
Investments, Indirect Taxes
I
GNP at Market Net Exports, Rental Income
Prices NX GDP at Market Net National
Profits
Prices Product NNP,
at market Nationa
Income, Income from self-
prices
Consumption NI=NNP at employment
C factor cost
Wages and
Salaries

Composition of Definition Definition Definition Factor

Spending on of GDP of NNP of national Earnings
GNP income
 DEFINITIONS-NOMINAL
AND REAL VALUES
•  Nominal and Real GNP Nominal GNP measures
output at current prices.

•  Real GNP or GNP at constant prices adjusts

nominal GNP for changes in the general price level
due to inflation or deflation relative to a base year
or price index.

•  GNP may also be quoted using purchasing power

parity (PPP) rates or international dollars.
 DEFINITIONS-INFLATION
•  Inflation Inflation is the rise in average price
of goods over time.
•  Pure inflation is the special case in which all
prices of goods and factors of production
are rising at the same percentage rate.
 DEFINITIONS-INVESTMENT
The two categories of investment are
•  Inventory investment and
•  Gross Fixed Capital Formation
•  Inventory Investment or stocks are
•  goods currently held by a firm for future production or sale.
•  consists of the additional to raw materials and final products not
yet sold.
•  It enhances the ability to supply goods and services
 DEFINITIONS-INVESTMENT
Gross Fixed Investment (Gross fixed capital
formation, GFCF) is
•  the expenditure on new capital goods by firms.
•  It consists of durable assets (capital goods)
that are designed to enhance the
productive capacity in the future.
•  Examples are new plant and equipment,
roads and buildings
 SNAPSHOTS OF GDP AND
GNP IN GHANA
Indicators 1965 1990 2000 2010
GDP ($ million) 2,052 5,886 4,978 32,175
PCAP-GDP ($ million) 263 398 260 1319
PCAP-GNP($ million) 230 400 340 1250

The fact that in 1965 and in 2010 GDP exceeded

GNP indicates a negative NPA (i.e. property
income earned from abroad is less than property
income exported from Ghana).
GDP TRENDS IN GHANA

•  There was
very small
increases in
GDP from
1965 to 2004
•  There was a
large
increase in
GDP from
2004
GDP PER CAPITA TRENDS
IN GHANA
•  GDP per capital
was effectively
constant from
1965 to 2004
•  Beyond 2004
the per capita
GDP increased
sharply
 STRUCTURE OF
GHANAIAN ECONOMY
Distribution of Economic Active Population and
GDP by Industry (%)

Agriculture Industry Service

EAP GDP EAP GDP EAP GDP
1984 61.1 47.9 12.8 19.6 26.1 22.1
1998 55.0 36.7 14.0 25.1 31.0 29.1
2000 50.7 36.0 16.3 25.2 33.0 29.7
2010 56% 29.9% 15% 18.8% 29 51.4%
 STRUCTURE OF
GHANAIAN ECONOMY
 STUDENT SEARCH ASSIGNMENT
•  Submission: Monday 26th January 2015
•  GROUP 1: GDP
•  Prepare the league table of world GNP’s ranking countries in
order of their GNP Focus on the top 10, the 10 countries around
Ghana and the bottom 10
•  In developed countries, GNP is the most widely used. Why?)
•  In developing countries GDP is preferable. (Why?)
•  GROUP 2 Inflation
•  What factors determine the inflation rate in a country?
•  What items constitute the basket of goods used to measure
inflation in Ghana? What is the inflation trend in Ghana?
•  What is the inflation trend in UK?, USA, Japan, Brazil
•  GROUP 3 STRUCTURE OF ECONOMY
•  Compare and contrast the structure of the US economy as an
example of a developed economy with that of Ghana
•  Compare and contrast the structure of the Republic of Korea
as an example of a middle income economy with that of
Ghana