Editorials

by Rajen Kumar

No Escaping Social Media

Running a magazine concentrating on issues of small and medium enterprises and managing with limited resources is a like living life on the edge. In this rush of meeting deadlines,...

Special Reports

Apr 2012

EMRC, Brussels Associates with SME WORLD as its New Media Partner

EMRC has promoted business partnerships with the developing world and has organised dozens of business forums in key decision-making cities, such as Amsterdam, Rome,...

Knowledge Kit

Output Gap¸ National accounts, Green National Product, Financial literacy

Dec 2009

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Output Gap

The GDP gap or the output gap is the difference between potential GDP and actual GDP or actual output. The calculation for the output gap is Y-Y* where Y is actual output and Y* is potential output. If this calculation yields a positive number it is called an inflationary gap and indicates the growth of aggregate demand is out pacing the growth of aggregate supply--possibly creating inflation; if the calculation yields a negative number it is called a recessionary gap--possibly signifying deflation.

The percentage GDP gap is the actual GDP minus the potential GDP divided by the potential GDP.

National accounts

National accounts or national account systems (NAS) provide a complete and consistent conceptual framework for measuring the economic activity of a nation (or other geographic area in the broader term social accounts). These include detailed underlying measures that rely on double-entry accounting. By construction such accounting makes the totals on both sides of an account equal even though they each measure different characteristics (Ruggles, 1987). While sharing many common principles with business accounting, national accounts are firmly based on economic concepts.

National accounts broadly present the production, income and expenditure activities of the economic actors (corporations, government, households) in an economy, including their relations with other countries' economies, and their wealth. They present both flows during a period and stocks at the end of a period, ensuring that the flows are fully reconciled with the stocks. National accounts also include measures of the stocks and flows of financial assets and liabilities (commonly called "financial accounts" or "flow of funds" accounts).

There are a number of aggregate measures in the national accounts, most notably gross domestic product or GDP - which is the most widely used measure of aggregate economic activity in a period - disposable income, saving and investment. These aggregate measures and their development over time are generally of strongest interest to economic policymakers, although the detailed national accounts contain a rich source of information for economic analysis, for example in the input-output tables which show how industries interact with each other in the production process.

National accounts can be presented in nominal from real amounts, that is, correcting money totals for price changes over time (Sen, 1979; Usher, 1897). Economic growth rates (most commonly the growth rate of GDP) are generally measured in real (constant price) terms. The accounts are derived from a wide variety of statistical source data including surveys, administrative and census data, and regulatory data, which are integrated and harmonised in the conceptual framework. They are usually compiled by national statistical offices and/or central banks in each country, though this is not always the case, and may be released on both an annual and (less detailed) quarterly frequency.

Green National Product

Many economists, environmentalists, and citizens have recently criticized the Gross National Product. The criticism stems from the fact that this measurement of national product does not account for environmental depredation and resource depletion. A new approach to the situation of allocating these omitted environmental features in the national product has been the advent of the Green National Product.

Financial literacy

Financial literacy is the ability to understand finance. More specifically, it refers to an individual's ability to make informed judgements and effective decisions about the use and management of their money. Raising interest in personal finance is now a focus of state-run programs in countries including Australia, Japan, the United States and the UK.

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