Social Accounts in a Closed Economy

A closed economy is one which is self-contained  and sclf·wlfiril’nt so that it has no economic dealings prepared on a uniforms basis and classified .” (i I transactions relating to productive activity.  transactions relating to the use of gain from  productive activity. and {iii) transactions relating tocapit l. Uy cousolidating these accounts. prepared for each firm. household, government agencies and every other transactor. we get three consolidated national accounts: (a) Production (or operating) Account (b) Consumption (or appropriation) Account and (c) Accumulation (or capital transactions) Account. These accounts can be illustrated for purpose of easy understanding, by a diagram given below. These transactions
arc represented as flows of money b y arrows.Let us now say a word about these accounts one by one. Production (or 1I1)l’ratilll-:lAccount. In this account. we include all productive activities being carried on in the entire economy. It is a consolidated production statement relating to all firms operating in the economy. These firms manufacture commodities meant for consumption and capital goods and equipment for continuing and accumulating wealth, The income llhrained by these firms, therefore. comes through two channels.  partly by selling consumption goods and partly by selling capital equipment. The flow of this revenue is indicated by thc direction of thc arrows. In these accounts, purchases and sales by thc  firms from one another have obviously to be left out.They may be important for individual accounts hut in the national or social accounts they cancel out.