National Income Accounting Measurement

Econ 202: Macroeconomics

The Measurement and Structure

of the National Economy – 1/3

Alpay Filiztekin

Alpay Filiztekin Econ 202: Macroeconomics 1 / 19

National Income Accounting Measurement

Circular Flow
The national income accounts are based on the idea that the
amount of economic activity that occurs during a period of time
can be measured in terms of
1 the amount of output produced, excluding output used up
in intermediate stages of production (the product
approach);
2 the amount of spending by the ultimate purchasers of
output (the expenditure approach); and
3 the incomes received by the producers of output (the
income approach).
Each approach gives a different perspective on the economy,
however, gives identical measurements of the amount of
current economic activity.
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National Income Accounting Measurement

Circular Flow

Goods and services

Goods and services
Goods and services
Consumer
Consumer
Consumer
expenditure
Exports expenditure
expenditure
Imports Exports
Imports

Government
Government Taxes
Government
Taxes
Taxes Taxes Taxes Taxes

Wages, rent
ServicesServices
Services
Services Services
Services
dividends, etc. Imports
Wages, rent
Wages,
Wages, rentrent
dividends, etc.
dividends, etc.
Services of factors dividends, etc.(labor, capital, etc)
of production
Services of factors of production (labor, capital, etc)
Services of factors of production (labor, capital, etc)
Services of factors of production (labor, capital, etc)
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National Income Accounting Measurement

Wealth and Gross Product

Notice the difference between stocks and flows:

• A person’s wealth is stock; his income and expenditure are
flows.
• The amount of capital in the economy is a stock; the
amount of investment is a flow.
• The government debt is a stock; the government budget
deficit is a flow.

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National Income Accounting Measurement

Production Approach

Accounting Conventions:

• Adding apples and oranges.

Goods and services are counted in GDP at their market
values – that is, at the prices at which they are sold. The
advantage of using market values is that it allows adding
the production of different goods and services.
Thus, we measure Value Added.

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National Income Accounting Measurement

Production Approach
Accounting Conventions:

• Imputed values.
A problem with using market values to measure GDP is
that some useful goods and services are not sold in
formal markets. Because of the difficulty of obtaining
reliable measures, some non-market goods and services
simply are ignored in the calculation of GDP.
Homemaking and child-rearing services performed within
the family without pay, for example, are not included in
GDP, although homemaking and child care that are
provided for pay (for example, by professional house
cleaners or by private day-care centers) are included.

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National Income Accounting Measurement

Production Approach
Accounting Conventions:

• Imputed values.
A particularly important component of economic activity
that does not pass through markets is the value of the
services provided by government, such as defense,
public education, and the building and maintenance of
roads and bridges.
In this case, we value government services at their cost of
production. Thus the contribution of public education to
GDP, for example, is measured by the cost of teachers’
salaries, new schools and equipment, and so on.

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National Income Accounting Measurement

Production Approach
Accounting Conventions:

• Imputed values.
The underground economy includes both legal activities
hidden from government record keepers (to avoid payment
of taxes or compliance with regulations, for example) and
illegal activities such as drug dealing, prostitution, and (in
some places) gambling.
Government statisticians are unable to reliably adjust GDP
figures to include estimates of the underground economy’s
size, but they do make some adjustments for
under-reported income.

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National Income Accounting Measurement

Production Approach
Accounting Conventions:

• Newly Produced Goods and Services.

As a measure of current economic activity, GDP includes
only goods or services that are newly produced within the
current period. GDP excludes purchases or sales of goods
that were produced in previous periods.
Thus, although the market price paid for a newly
constructed house would be included in GDP, the price
paid in the sale of a used house is not counted in GDP.
(The value of the used house would have been included in
GDP for the year it was built.)

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National Income Accounting Measurement

Production Approach

Accounting Conventions:

• Final Goods and Services.

Goods and services produced during a period of time may
be classified as either intermediate goods and services
or final goods and services.
Intermediate goods and services are those used up in the
production of other goods and services in the same period
that they themselves were produced.
For example, flour that is produced and then used to make
bread in the same year is an intermediate good.

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National Income Accounting Measurement

Production Approach

Gross domestic product at current prices by kind of economic Gayrisafi yurtiçi hasıla, iktisadi faaliyet kollarına göre cari fiyatlarla
2019 2020
activity, at current prices (Millions TL) (Milyon TL)
Value Share Value Share
Agriculture, forestry and fishing 276,372 6.4 337,160 6.7 Tarım, ormancılık ve balıkçılık
Mining and quarrying 48,220 1.1 59,192 1.2 Madencilik ve taşocakçılığı
Manufacturing 789,334 18.3 965,341 19.1 İmalat sanayi
Electricity, gas, steam and air conditioning supply 71,348 1.7 88,324 1.8 Elektrik, gaz, buhar ve iklimlendirme üretimi ve dağıtımı
Water supply, sewerage, waste management and remediation
activities 33,776 0.8 36,319 0.7 Su temini; kanalizasyon, atık yönetimi ve iyileştirme faaliyetleri
Construction 233,313 5.4 264,899 5.2 İnşaat
Wholesale and retail trade; repair of motor vehicles and Toptan ve perakende ticaret; motorlu kara taşıtlarının ve
motorcycles 537,682 12.5 624,747 12.4 motosikletlerin onarımı
Transport and storage 370,512 8.6 398,540 7.9 Ulaştırma ve depolama
Accomodation and food service activities 145,481 3.4 104,612 2.1 Konaklama ve yiyecek hizmeti faaliyetleri
Information and communication 111,717 2.6 138,633 2.7 Bilgi ve iletişim
Financial and insurance activities 134,352 3.1 187,317 3.7 Finans ve sigorta faaliyetleri
Real estate activities 282,779 6.5 316,166 6.3 Gayrimenkul faaliyetleri
Professional, scientific and technical activities 100,287 2.3 113,879 2.3 Mesleki, bilimsel ve teknik faaliyetler
Administrative and support service activities 128,794 3.0 127,140 2.5 İdari ve destek hizmet faaliyetleri
Public administration and defence; compulsory social security 227,738 5.3 265,580 5.3 Kamu yönetimi ve savunma; zorunlu sosyal güvenlik
Education 189,771 4.4 206,705 4.1 Eğitim
Human health and social work activities 114,009 2.6 143,169 2.8 İnsan sağlığı ve sosyal hizmet faaliyetleri
Arts, entertaintment and recreation 48,501 1.1 64,722 1.3 Kültür, sanat, eğlence, dinlence ve spor
Other service activities 41,851 1.0 42,543 0.8 Diğer hizmet faaliyetleri
Activities of household as employers 2,089 0.0 1,668 0.0 Hanehalklarının işverenler olarak faaliyetleri
Sectoral total 3,887,924 90.0 4,486,656 88.9 Sektörler toplamı
Taxes-Subsidies 429,863 10.0 560,228 11.1 Vergi-Sübvansiyon
Gross domestic product (purchaser's price) 4,317,787 100.0 5,046,883 100.0 Gayrisafi yurtiçi hasıla (alıcı fiyatlarıyla)

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National Income Accounting Measurement

Expenditure Approach

A different perspective on the components of GDP is obtained

by looking at the expenditure side of the national income
accounts.
The expenditure approach measures GDP as total spending on
final goods and services produced within a nation during a
specified period of time.

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National Income Accounting Measurement

Expenditure Approach
Five major categories of spending are added to get GDP:

Y = C + I + G + X − M.
Y = GDP
= total production (or output)
= total income
= total expenditure;
C = consumption;
I = investment;
G = government purchases of goods and services;
X = exports
M = imports.
Note: NX = X − M is net exports.
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National Income Accounting Measurement

Expenditure Approach
Consumption

Consumption is spending by domestic households on final

goods and services, including those produced abroad.
Consumption expenditures are grouped into three categories:
1 consumer durables, which are long-lived consumer
items, such as cars, televi- sions, furniture, and major
appliances (but not houses, which are classified under
investment);
2 nondurable goods, which are shorter-lived items, such as
food, clothing, and fuel; and
3 services, such as education, health care, financial
services, and transportation.

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National Income Accounting Measurement

Expenditure Approach
Investment

Investment includes both

1 fixed investment, spending for new capital goods, and
• business fixed investment, which is spending by
businesses on structures (factories, warehouses, and office
buildings, for example) and equipment (such as machines,
vehicles, computers, and furniture) and software; and
• residential investment, which is spending on the
construction of new houses and apartment buildings;
2 inventory investment, which is increases in firms’
inventory holding

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National Income Accounting Measurement

Expenditure Approach

2019 2020
Gross domestic product at current prices by Gayrisafi yurtiçi hasıla, harcama yöntemiyle cari
expenditure approach (Millions TL) fiyatlarla (Milyon TL)
Value Share Value Share
Resident households and non-profit institutions Yerleşik hanehalkı ve hanehalkına hizmet eden kar
serving households final consumption expenditure 2,456,123 56.9 2,863,969 56.7 amacı olmayan kuruluşların nihai tüketim harcaması
Government final consumption expenditure 668,572 15.5 765,984 15.2 Devletin nihai tüketim harcamaları
Gross fixed capital formation 1,117,455 25.9 1,382,086 27.4 Gayrisafi sabit sermaye oluşumu
Change in stocks -35,884 -0.8 227,175 4.5 Stok değişmeleri
Exports of goods and services 1,407,484 32.6 1,446,682 28.7 Mal ve hizmet ihracatı
Imports of goods and services 1,295,963 30.0 1,639,013 32.5 Mal ve hizmet ithalatı
Gross domestic product 4,317,787 100.0 5,046,883 100.0 Gayrisafi yurtiçi hasıla

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National Income Accounting Measurement

Income Approach

The third and final way to measure GDP is the income

approach. It calculates GDP by adding the incomes received by
producers, including profits, and taxes paid to the government.

The sum of these factors constitute National Income:

1 Compensation of employees
2 Net operating surplus and mixed income
3 Taxes less subsidies.

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National Income Accounting Measurement

Income Approach

Depreciation (also known as consumption of fixed capital) is the

value of the capital that wears out during the period over which
economic activity is being measured.
In the calculation of the components of national income
depreciation is subtracted from total, or gross, income. Thus, to
compute the total or gross amount of income, we must add
back in depreciation. The sum of net national product and
depreciation is gross domestic product (GDP).

Gross national product and gross domestic product are called gross because they
measure the nation’s total production or output of goods and services without
subtracting depreciation.

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National Income Accounting Measurement

Income Approach

2019 2020
Gross domestic product, income approach Gayrisafi yurtiçi hasıla, gelir yöntemiyle
(Millions TL) (Milyon TL)
Value Share Value Share
Compensation of employees 1,354,321 31.4 1,483,896 29.4 İşgücü Ödemeleri
Taxes less subsidies on products and
production 392,397 9.1 489,662 9.7 Ürün ve Üretim Vergi Eksi Sübvansiyon
Net operating surplus/mixed income 1,842,916 42.7 2,212,588 43.8 Net İşletme Artığı Ve Karma Gelir
Consumption on fixed capital 728,153 16.9 860,737 17.1 Sabit Sermaye Tüketimi
Gross Domestic Product 4,317,787 100.0 5,046,883 100.0 Gayrisafi yurtiçi hasıla

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