National Accounts At Constant Prices

This article discusses the problem of compiling a balanced set of national accounts at constant prices. The method adopted is based on earlier work on this subject by Burge and Geary. Commodity flows, which are uniquely deflatable, are expressed at constant prices and savings in constant prices is obtained by preserving a balanced set of equations in real terms. The deflation of the external account is discussed. A method is suggested for expressing the national income account in real terms and an “income gain” is deduced for each industrial sector which represents the difference between real income and real product in that sector. The sum of the income gains for the domestic sectors is zero. The constituents of the income/expenditure accounts of households, corporations and general government are expressed at constant prices by selecting suitable deflators in a consistent manner. The accounts in real terms are now unbalanced and are balanced again by inserting a balancing item which is shown to represent a gain to the sector arising from changes in the terms of trade between the sectors. This item is called an “expenditure gain”. The sum of the expenditure gains for the institutional sectors is zero. The system suggested can be extended to cover additional items in the accounts and thus a complete set of national accounts in real terms can be derived.