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National Account preparation can be defined as estimation of value of main macroeconomic flows
which shows the behavior and economic performance and total economic structure in a certain
situation.
In 1936 J.M. Keynes pries has provides the theoretical background for the preparation of national
accounts and most countries prepared accordingly
Accordingly Sri Lanka started the preparation of national accounts officially in 1949. It has
conducted by the Census Department. But from 1951 it has conducted by the Central Bank.
Currently from 2007 national accounts are prepared by Census Department.
Any economy operates according to the activities and behavior of main economic units or agents.
The behavior of these groups can be explained using a macroeconomic model. There are four main
active economic units.
1. Households 3. Government
2. Business Firm 4. Foreign Sector
HOUSEHOLD SECTOR
Houesholds are small family unit that satisfy the needs with a common budget and lives
under a one roof.
Main functions of household are
o Supplying factors of production and earn factor earnings.
o Income earned is use for the consumption and savings
o Purchase goods and services for the consumption
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PRODUCTION SECTOR
GOVERNMENT SECTOR
Decisions related to provide public goods, merit goods and minimize externalities
Establish law and peace
Increase the infrastructure supply
Confirm the macroeconomic stability
Decisions related to Provide subsidies and imposing taxes
FOREIGN SECTOR
The interrelationships with economic units or the value of economic flows are included in the
national accounts in a country. The values of economic flows can be calculated based on the
interrelationships with main economic units in the economic system.
Following figure represents the interrelationships between four main economic agents. Two main
flows can be identified.
The exchange of production factors and exchange of gods and services depicts by outside flows and
these are known as Real Exchange or Real Flows
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The factor income received by the households and payments to purchase goods and services and
factor payments by the business sector and the income earned by business sector from selling
goods and services are known as Financial Exchange or flows.
This clearly indicates that according to the interrelated process financial flows and real flows
activate opposite directions.
According to the circular flow can identify the output, income and expenditure and income
determination in a country in a certain situation.
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APPROACHES OF NATIONAL ACCOUNTING
Based on these 3 directions of flows, i.e. a flow of income, a flow of output, & a flow of
expenditures, economists develop 3 approaches to measure GNP.
The total value of all final goods & services ( i.e. outputs ) can be found by adding up the total
values of outputs produced at different stages of production.
2. Expenditure Approach
The amount of expenditures refers to all those spending on currently-produced final goods &
services only.
In an economy, there are 3 main agencies which buy goods & services. They are the
households, firms and the government.
The expenditure approach is to measure the GNP. We could not buy all our outputs because
some are exported to overseas. Similarly, our consumption expenditures may include the
purchases of some imports. In order to find the GNP, the value of exports must be added to C,
I & G whereas the value of imports must be deducted from the above amount.
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Finally, we have :
G N P AT MARKET PRICES = C + I + G + X - M
3. Income Approach
The income approach tries to measure the total flows of income earned by the factor-owners in the
provision of final goods & services in a current period. There are 4 types of factors of production
and 4 types of factor incomes accordingly.
o production of households for own final use, defined as those productive activities that
result in goods or services consumed or capitalized by the households that produced them
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