Econ 3040 Section 1
National Income and Product Accounts
Tilahun Emiru
Cornell University
January 29, 2016
Tilahun Emiru (Cornell University)
Econ 3040 Section 1
January 29, 2016
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Outline
1
Overview of Gross Domestic Product
2
Measurement and Components of GDP
3
The National Income and Product Accounts
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Overview of Gross Domestic Product
Gross Domestic Product
The broadest and most commonly used metric of aggregate economic
activity is gross domestic product (GDP).
GDP measures the market value of final goods and services newly
produced within a country in a fixed period of time
Non-marketed goods and services do not show up in GDP. Think of
goods and services in the underground economy, home production,
clean air, government services, and so on.
Only the final goods and services to avoid double counting
intermediate goods.
GDP only measures what is produced by labor and property physically
located in the country
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Overview of Gross Domestic Product
Gross National Product
Another related, gross national product (GNP), measures the market
value of final goods and services newly produced by factors of production
owned by citizens and firms of the home country.
GNP is equal to GDP adjusted for net factor payments (NFP): the
income paid to domestic factors of production from the rest of the
world, minus income paid to foriegn factors of production from the
domestic economy
GNP = GDP + NFP
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Overview of Gross Domestic Product
GDP vs GNP
Output from Mexican workers in the United States would be counted
as U.S. GDP and Mexican GNP, not U.S. GNP
The value added from American capital and management in
producing GM cars in China (as opposed to Chinese labor or capital)
would be counted as U.S. GNP and Chinese GDP, not U.S. GDP
For smaller countries with many workers living abroad, the difference
between GDP and GNP can be quite significant:
Remittances to Tajikistan totaled 42% of GDP in 2014, while for the
U.S., it was only about 0.04%
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Measurement and Components of GDP
The Fundamental Identity of National Income Accounting
Total Production = Total Income = Total Expenditure
The income-expenditure identity:
Y
C
I
G
NX
Y = total production (GDP)
= total income
= total expenditure
C = consumption
I = investment
G = government purchases of goods and services
NX = net exports of goods and services
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Measurement and Components of GDP
Consumption (C)
Personal consumption expenditure measures spending by domestic
residents on final goods and services, including those produced abroad.
It is categorized into:
1
Durables: long-lived consumer items (e.g., cars, televisions,
refrigerators, and so on)
2
Non-durables: short-lived consumer items (e.g., groceries, fuel, and
so on)
3
Services, such as education, health care, financial services, and
transportation.
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Measurement and Components of GDP
Investment (I)
Gross private domestic investment measures spending on new capital
goods (fixed investment) and inventory holdings (inventory investment):
1 Nonresidential fixed investment measures new spending on
structures, equipment, and intellectual property
Structures include factories, office buildings and so on
Equipment such as machinary, vehicles, and so on
Intellectual property includes software as well as research and
development (R&D)
2
Residential fixed investment includes the construction of new
houses and appartment buildings
3
The change in private inventories is the change in the inventory of
unsold final goods owned by businesses at average market value over
the period
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Measurement and Components of GDP
Government Purchases (G) and Net EXports (NX)
Government purchases of goods and services include any expenditure by
the government for a currently produced good or service, foreign or
domestic.
It is categorized into federal, state and local.
Transfers are excluded since they are not made in exchange for goods
and services.
Net Exports: exports minus imports
Exports are added because they represent spending by foreigners on
home-produced goods.
Imports are subtracted because they represent spending by domestic
citizens on foreign-produced goods.
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Measurement and Components of GDP
U.S. GDP 2012
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Measurement and Components of GDP
Measuring GDP: The Income Approach
One agent’s spending is another agent’s income.
National income (NI) measures income earned in prodcution which is
distributed as follows:
Compensation of employees
Proprietors’ income
Rental income of persons
Corporate profits
Net interest
Taxes on production and imports
Business current transfer payments
Current surplus of government enterprises
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Measurement and Components of GDP
Gross National Income
The flipside to GNP is gross national income (GNI), which measures
national income plus depreciation - the costs incurred in the production
of GNP
GNI = NI + Depreciation
In theory GNI equals GNP, but income is compiled from different data
sources, leaving a small “statistical discrepency” between the two
measures
GNI
GNP
Analogously to GNP, GNI measures income generated by factors of
production owned by citizens and firms of the country, regardless of
their location
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January 29, 2016
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Measurement and Components of GDP
Relation of GDP, GNP, and NI
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Measurement and Components of GDP
Gross Domestic Income
Similarly, the flipside to GDP is gross domestic income (GDI), which
measures national income adjusted for depreciation and net factor
payments:
GDI = NI + Depreciation + NFP
In theory GDI equals GDP, but they differ by the same “statistical
discrepency” as between GNI and GNP
GDI
GDP
Analogously to GDP, GDI only reflects income generated by labor and
property physically located in the country
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The National Income and Product Accounts
The National Income and Product Accounts
GDP, GDI, GNP, and GNI are all major aggregate components of the
National Income and Product Accounts (NIPAs):
The NIPAs are a system of integrated accounts detailing the
composition of production and the distribution of incomes earned in
production
The accounts are a “doubly-entry” system, meaning that every
component recorded as an expenditure (or use of resources) appears
elsewhere as a source of income (or receipt)
For example, the taxes paid by households and businesses show up as
the receipts for levels of government
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The National Income and Product Accounts
NIPAs All Together: C + I + G + NX = GDP
GDI
Source: “Measuring the Economy: A Primer on GDP and the National
Income and Product Accounts”
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The National Income and Product Accounts
National Income Accounting Data for the U.S.
The U.S. NIPAs are produced by the Bureau of Economic Analysis:
http://www.bea.gov/iTable/index_nipa.cfm
The data underlying these slides can be found in:
Table 1.1.1 Percent Change From Preceding Period in Real Gross
Domestic Product
Table 1.1.2 Contributions to Percent Change in Real Gross Domestic
Product
Table 1.1.5 Real Gross Domestic Product
Table 1.1.6 Real Gross Domestic Product, Chained Dollars
Table 1.7.5 Relation of Gross Domestic Product, Gross National
Product, Net National Product, National Income, and Personal Income
Table 1.10 Gross Domestic Income by Type of Income
Table 7.1 Selected Per Capita Product and Income Series in Current
and Chained Dollars
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January 29, 2016
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The National Income and Product Accounts
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January 29, 2016
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The National Income and Product Accounts
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The National Income and Product Accounts
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The National Income and Product Accounts
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The National Income and Product Accounts
FRED
You can also find U.S. NIPA data and just about every macroeconomic
time series at FRED, the Federal Reserve Economic Data website of the
Federal Reserve Bank of St. Louis:
http://research.stlouisfed.org/fred2/
240,000+ data series
Easily create custom graphs and charts
Download any data series to excel or extract figures to pdf, png, or
jpg formats
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The National Income and Product Accounts
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