system of national accounts

The SNA

The system is used to track economic output.

SNA roles

Gives guidelines on the classification of 'accounts' that measure economic output .

Provide a Common Framework

Guide Policymakers and Analysts

Measure Economic Activity Consistently

Why is GDP important?

• Measure economic activity

• Measure economic growth

• Compare levels of wealth and development

how to avoid double counting

• only include the value added at each stage of production.

• only include the final sale value of the good or service

• only include the amount of income received at each production stage.

The GDP deflator formula

GDP Deflator = nominal GDP / real GDP x 100

The multiplier formulae

1. K = ∆Y ÷ ∆J where ∆Y is the change in income and ∆J is the change in injections.

2. K = 1 ÷ (1 - mpc), where the mpc is the marginal propensity to consume. 

3. K = 1 ÷ mps, where the mps is the marginal propensity to save.

K = the multiplier

Example: MPC = 0.8 → MPS = 0.2

K=1÷0.2=5

An injection of 100 → final GDP increase of 500.

3 sector model

K = 1 ÷ (1 - mpc) = 1 ÷ (mps + mpt)