In this first chapter, our aim is to give an initial definition of the essential macroeconomic variables, listed in the table below, and taken from the OECD Economic Outlook for December 2004.1 We have chosen to illustrate this chapter using the example of Germany, but we might as well have chosen any other OECD country, since the structure of the country chapters in the OECD Economic Outlook is the same for all countries.

Everyone wants the maximum possible growth, although today that the preference is for “durable” or “sustainable” growth. The generic term “growth” indicates the overall change in the quantity of goods and services produced and made available to consumers and investors. The prime task of national accounts is to separate out, within the change in the observed monetary aggregates, the part of growth that stems from a change in quantities from the part that is due to a change in prices. An increase in quantities or, as the national accountants would say, in “volumes” is generally a good thing. A rise in prices, known as inflation, is not generally good news. A change in a monetary aggregate has accordingly very limited interest in the national accounts. However, it takes on economic significance when, to use the national accountants’ jargon, one carries out its “volume/price breakdown”. This is why this highly technical chapter comes first, even before those on output and final uses.

In Chapter 2, we examined the comparability of data over time for the national accounts of a given country. We saw how to separate changes in volume from changes in prices. In this chapter, we shall examine the comparison of data among several countries. Inter-country comparisons are more difficult for at least three reasons: 1) despite the efforts to achieve international synchronization, the statistical methods for estimating national accounts variables can vary from one country to another; 2) individual countries' institutions can be different; and (3) countries do not have the same currency and the same price levels.

Production is what leads to “output” (as it is termed in the national accounts), creating jobs, generating income for workers and owners of capital, and resulting in the goods and services found in our stores. Output is a central concept in economics. It is essentially used by economists in volume terms (i.e. not at current prices).

Changes in the final uses of GDP, or demand to use the economists’ term, determine the growth of real GDP in the short term. This chapter gives the definition of the components of this demand.

A household is a group of people collectively taking responsibility to feed and house themselves. A household can consist of a single person or of two or more people living under the same roof, these people generally being linked by family ties. However, there are also “institutional households” consisting of, for example, members of the armed forces living in a barracks or on board a ship, people detained in prison, or nuns living in a convent. National accounts make no distinction between these different categories of “household”, and they are all lumped together in what is known as the “household sector”, carrying the code S14. In practice, however, the bulk of the household sector consists of families.

OECD economists are particularly interested in the institutional framework in which enterprises (firms) operate, in order to identify how to improve firms’ performance and generate an increase in employment, among other benefits. In recent OECD reports on France, for example, the authors have suggested a certain number of structural reforms intended to improve the performance of French firms. For example:

Household final consumption expenditure accounts for 60% of GDP, so that a change of one or two percentage points in this aggregate can decide whether the economy does well or badly. The OECD economists therefore keep a close eye on the factors that influence household consumption. The most important of these is their disposable income during the period in question, but it is not the only one. Another variable influencing consumption is the change in household wealth.

OECD Economic Surveys on individual member countries always contain in-depth analysis of fiscal data, and they sometimes criticise government fiscal policy. Here are some extracts from the July 2003 report on France:

According to Edmond Malinvaud, one of the most distinguished contemporary French economists, the national accounts are “the presentation, in a rigorous accounting framework, of all the quantitative information relating to the nation’s economic activity”.* Here, the importance of the words “rigorous accounting framework” must be stressed. In fact, any macroeconomist carries in his head a simplified model of the economy in which everything made by someone is used by someone else, anything exported by someone is imported by someone else, anything saved by someone is invested by someone else, and so on.

Previous chapters concentrated on the definitions of the variables in the national accounts. This chapter is quite different; its aim is to explain how national accounts are compiled in practice and to describe the main consequences of this process for the user. We will start by discussing the quarterly accounts; then we will examine the relationship between quarterly national accounts and annual national accounts. Finally, we will look at ordinary revisions and comprehensive revisions in the national accounts. The example used will be France, but the lessons to be learned apply also to other countries.

Following several quarters of falling real gross domestic product (GDP) in 2000 and 2001, the US economy showed considerable strength. For example, from the fourth quarter of 2001 through the fourth quarter of 2005, growth in the US economy as measured by real GDP averaged 3.2% per quarter (at an annual rate).

With more than 1.25 billion inhabitants, China’s population dwarfs that of all other countries except India. According to the World Bank estimates shown in Figure 1 below, China is also an economic giant, with a GDP in 2004 second only to that of the United States. China’s GDP is shown as more than one and a half times bigger than that of the next largest country – Japan – and its GDP is larger than those of Germany, the United Kingdom and France combined. Question: how reliable are the numbers for China in Figure 1?

With a population of more than 1 billion, India is the second-largest country in the world, and because of a higher growth rate, its population is expected to surpass that of China in the near future. However, as Figure 1 in Chapter 13 shows, despite a comparable population, India’s GDP is less than half that of China. The latest World Bank estimates rank India’s GDP (based on Purchasing Power Parities, or PPP) in fourth position – between that of Japan and Germany.

There are three recent studies of the history of national accounts. The preface to the 1993 System of National Accounts (“Perspectives on the 1993 SNA: Looking Back and Looking Ahead”) describes the development of the 1953, 1968 and 1993 versions of the SNA. André Vanoli, the French expert in national accounts, gives what must surely be the definitive history of national accounts in A History of National Accounts (IOS press, 2005, ISBN: 1-59603-469- 3). Angus Maddison, in the introduction of The World Economy: Historical Statistics (OECD, 2003), describes the very earliest attempts to measure national income. Maddison is the main source for the next section.