1. National Accounting
28/04/2019
Dr. Amr Nazieh

2. Ch 2: The basic concepts of the National Accounting
National Income
It represent the returns from using factors of production.
Labor has to receiver wages, the owner of capital has to receive profits for his organizing the firm and for facing some sorts of risk.
28/04/2019
Dr. Amr Nazieh

3. Ch 2: The basic concepts of the National Accounting
National Income
All these returns will represent the price of using these elements' in the national production.
Therefore, national production is the sum of all income received by the different factors of production.
28/04/2019
Dr. Amr Nazieh

4. Ch 2: The basic concepts of the National Accounting
National income includes the following individual revenues as follows:
 1- Wages salaries, fringe benefits etc, to pay for labour element
2- Profits to pay for capital.
3- Rent to pay the cost of using the land.
4- Profit paid for organization.
28/04/2019
Dr. Amr Nazieh

5. Ch 2: The basic concepts of the National Accounting
In addition to these, some important notes, should be considered as :
a- Transfer payments should be excluded, examples of these are, pensions and the retirement compensations.
 b- Debit interests should be considered only from the view of the entity used loans, not from the lending entity.
28/04/2019
Dr. Amr Nazieh

6. Ch 2: The basic concepts of the National Accounting
c- Profits should be considered only when created and not when collected.
 d- Profits of revaluating Inventory should be excluded from the national income.
28/04/2019
Dr. Amr Nazieh

7. Ch 2: The basic concepts of the National Accounting
 e- Capital gains and bad debts to the debtor should be excluded from the national income because it will not add any value.
 f- Direct taxes should not be considered within the national income.
28/04/2019
Dr. Amr Nazieh

8. Ch 1: The nature of the national accounting
Measuring the National Income
It seems that both of national income and national production are two concepts for the same economic activities .
28/04/2019
Dr. Amr Nazieh

9. Ch 1: The nature of the national accounting
National production represents the expense paid from the views of the users of the factors of production, but in the meantime they represents the earning revenues from the views of the owners of the factors of production.
28/04/2019
Dr. Amr Nazieh

10. Ch 1: The nature of the national accounting
Accordingly, national production will be used to measure the national income, after doing some charges.
Accordingly the national production should be affected as follows:
28/04/2019
Dr. Amr Nazieh

11. Ch 1: The nature of the national accounting
1- Items to be excluded from the national production.
(1) Indirect taxes.
(2) International transfers, which represent donations and gifts from entities.
28/04/2019
Dr. Amr Nazieh

12. Ch 1: The nature of the national accounting
2- Items to be added to the national production.
(1) Donations from the government to the entity.
28/04/2019
Dr. Amr Nazieh

13. Ch 2: The basic concepts of the National Accounting
According to these, national income can be calculated according to the following equation:
28/04/2019
Dr. Amr Nazieh

14. Ch 2: The basic concepts of the National Accounting
National income =
National production at market prices + donations - Indirect taxes - internal transfers
28/04/2019
Dr. Amr Nazieh

15. Ch 2: The basic concepts of the National Accounting
National income at market prices =
Returns of production factors + Indirect taxes - donations + internal transfers
28/04/2019
Dr. Amr Nazieh

16. Ch 2: The basic concepts of the National Accounting
National income at factor cost = National Production at factor cost =
wages + rent + interests + profits
28/04/2019
Dr. Amr Nazieh

17. Ch 2: The basic concepts of the National Accounting
While in case of evaluating national production at market prices, we will find that: National income will not equal National production
28/04/2019
Dr. Amr Nazieh

18. Ch 2: The basic concepts of the National Accounting
From other side, national income can be measured in cases of existing returns from abroad and payments to foreign elements doing work inside as follows:
28/04/2019
Dr. Amr Nazieh

19. Ch 2: The basic concepts of the National Accounting
National income =
Returns of factors of production + Returns from doing work abroad - Payments for work achieved inside the country to foreigners
28/04/2019
Dr. Amr Nazieh

20. Ch 2: The basic concepts of the National Accounting
National Spending
National spending represents the total individuals and other sectors of the society expenditures during a period of time.
This spending will be focused either in:
28/04/2019
Dr. Amr Nazieh

21. Ch 2: The basic concepts of the National Accounting
National Spending
(1) Consumption spending.
(2) Capital spending
(3) Savings, which be specified to increase investments and capital spending
28/04/2019
Dr. Amr Nazieh

22. Ch 2: The basic concepts of the National Accounting
Accordingly, national income will be distributed between consumption and saving, which will be in turn used in investment and adding a new assets to the society.
Then:
National saving = National Investment
28/04/2019
Dr. Amr Nazieh

23. Ch 2: The basic concepts of the National Accounting
Accordingly, national spending will be measure as follows:
28/04/2019
Dr. Amr Nazieh

24. Ch 2: The basic concepts of the National Accounting
×××
Consumption spending
(+) Investments spending which include: ××
Change in the inventory
capital construction
××××
Total domestic spending at market prices
(×××)
(-) Deprecation of capital
Net Domestic spending at market prices
(-) Indirect taxes
(+) Production donation
Net domestic spending at factor costs
(±) Net exports ( exports - imports )
(±) Net other incomes to production factors
Net national spending at factor costs
28/04/2019
Dr. Amr Nazieh

25. Ch 2: The basic concepts of the National Accounting
National Saving
National saving represents the difference between national income and current spending.
In other terms, national saving will represent the summation of saving of all the society's saving.
28/04/2019
Dr. Amr Nazieh

26. Ch 2: The basic concepts of the National Accounting
National Investment
National investment represents the new addition to the national capital within a period of time .
28/04/2019
Dr. Amr Nazieh

27. Ch 2: The basic concepts of the National Accounting
National Investment
Accordingly, the purchase of a current project will not represent, a national investment, as, it will not lead to increase the national capital.
In the mean time, any increase to the inventory will represent a sort of investment.
28/04/2019
Dr. Amr Nazieh

28. Ch 2: The basic concepts of the National Accounting
In summary, national investment will include:
(1) Addition to the inventory.
(2) Capital additions, in terms of:
the purchase of capital goods.
New capital establishments.
Importing of new capital goods.
28/04/2019
Dr. Amr Nazieh

29. Ch 2: The basic concepts of the National Accounting
Example :-
An economy is including different sectors and the following data are related with two sectors A, B of that economy: (, )
28/04/2019
Dr. Amr Nazieh

30. Ch 2: The basic concepts of the National Accounting
Items
4000
3000
Final products at market prices
Factors of production returns:
800
500
Wages
1200
750
Rents
960
605
Interests
230
205
Profits
840
600
Intermediate requirements
100
150
Depreciation of capital
110 70
Indirect taxes 50
Production donations
28/04/2019
Dr. Amr Nazieh

31. Ch 2: The basic concepts of the National Accounting
Further information: (1) Transferred revenues from abroad 600 (2) Transferred revenues to abroad 480 (3) private spending 2000 (4) Public spending 2060 (5)Investments spending 1500
28/04/2019
Dr. Amr Nazieh

32. Ch 2: The basic concepts of the National Accounting
Required:-
Calculate the followings:
(1)Gross domestic production-at market prices.
(1) Net domestic production at market prices.
(3) Net national production at factor costs.
(4) Net national income at factor costs.
(5)Net national spending at factor costs.
28/04/2019
Dr. Amr Nazieh

33. Ch 2: The basic concepts of the National Accounting
Solution:-
(1)Gross domestic production-at market prices.
Total
(B)
(A)
Items
7000
4000
3000
Final products at market prices
((1440
(840)
(600)
(-) Intermediate requirements
5560
3160
2400
Total (Gross) domestic production-at market prices
28/04/2019
Dr. Amr Nazieh

34. Ch 2: The basic concepts of the National Accounting
(2) Net domestic production-at market prices.
Total
(B)
(A)
Items
5560
3160
2400
Total (Gross) domestic production-at market prices
(250)
(100)
(150)
(-) Depreciation of capital
5310
3060
2250
Net domestic production-at market prices
28/04/2019
Dr. Amr Nazieh

35. Ch 2: The basic concepts of the National Accounting
(3) Net national production at factor costs.
Total
(B)
(A)
Items
5310
3060
2250
Net domestic production-at market prices
(180)
110 70
(-) Indirect taxes
5130
2950
2180
120 50
(+) Production donations
5250
3000
(+) Net transfer ( )
5370
Net national production at factor costs
28/04/2019
Dr. Amr Nazieh

36. Ch 2: The basic concepts of the National Accounting
(4) Net national income at factor costs.
Total
(B)
(A)
Items
1300
800
500
Wages
1950
1200
750
Rents
1565
960
605
Interests
435
230
205
Profits
5220
3190
2060
Domestic income at factors costs
600
(+) (Internal) Transferred revenues from abroad
5850
480
(-) (external) Transferred revenues (to abroad
5370
Net national income at factor costs
28/04/2019
Dr. Amr Nazieh

37. Ch 2: The basic concepts of the National Accounting
(5)Net national spending at factor costs.
Total
Items
2000
private spending
2060
Public spending
4060
Total consumption spending
1500
(+) Investment spending
5560
Total Domestic spending at market prices
(250)
(-) Depreciation of capital
5310
Net Domestic spending at market prices
((180
(-) Indirect taxes
120
(+) Production donations
5250
600
(+) Transferred revenues (Internal) from abroad
480
(-) (external) Transferred revenues (to abroad)
5370
Net national spending at factor costs
28/04/2019
Dr. Amr Nazieh

38. Ch 2: The basic concepts of the National Accounting
(2) The Value add method
According to the previous method, we see that the second method is much better than the previous one as it indicates to both individual national production of each entity as well as the total national production.
28/04/2019
Dr. Amr Nazieh