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National Income Accounting
Dr. Dennis Foster
Total Expenditures Approach
• GDP = Gross Domestic Product
• Market value of final goods & services
• Equals the sum of …
– Consumption (by households)
– Investment (by businesses)
– Government (by government)
– Net exports (exports minus imports; by foreign
sector)
2012 = $15.7 t
Consumption =
• Durable goods ($1.22 t)
– Cars ($410 b), electronics, clothes, others
• Non-durable goods ($2.56 t)
– Food ($830 b), gasoline ($440 b), others
• Services ($7.34 t)
– Household consumption ($7.0 t)
• Housing & utilities ($1.9), health care ($1.8),
insurance ($.8 t), others
2012 = $11.12 t
Gross Private Investment =
• Nonresidential ($1.68 t)
– Equipment & software ($1.16 t), structures ($460 b)
• Residential ($383 b)
= Fixed Investment ($2.0 t)
• Change in business inventories ($57.7 b)
2012 = $2.06 t
FRED – Total Business Inventories
Government =
• Federal ($1.2 t)
– National defense ($810 b)
• State and Local ($1.85 t)
Transfer payments (SS, Medicare, et. al) are not
included in government expenditures. For 2012
this was $2.4 t.
2012 = $3.06 t
Net Exports =
• Exports ($2.2 t)
• Imports ($2.7 t)
This category can be negative! What happens if
we import more than we export? The difference
must be used to buy U.S. real/financial assets.
2012 = -$560 b
FRED – Net Exports (Constant $ & not)
Linking Expenditures to Incomes
GDP, GNP, NNP and NI (2011)
• GNP = GDP + income inflow - income outflow
$15.33 t = $15.07 t + $.78 t - $.53 t
• NNP = GNP – Depreciation
$13.39 t = $15.33 t - $1.94 t
[Depreciation includes that on gov’t.]
• National Income = NNP – misc.
$13.36 t
• NI = wages + rent + profits + interest + IBT
$8.3 $1.65 $1.83
$.53 $1.1
in trillions of $
All Government Receipts & Expenditures
Current receipts
Current tax receipts
Personal current taxes
Taxes on production and imports
Taxes on corporate income
Contributions for government social insurance
Current surplus of government enterprises 2
Current expenditures
Consumption expenditures
Current transfer payments
Interest payments 1
Net government saving
I
4547.3
3164.4
1629.0
1140.7
375.4
1099.0
-35.5
5630.1
2525.3
2448.1
598.8
-1082.9
2013
II
4832.0
3211.8
1668.8
1138.8
384.7
1108.6
-39.0
5682.7
2517.5
2457.3
649.0
-850.7
III
4623.6
3210.0
1657.8
1149.0
383.2
1114.4
-41.4
5699.3
2523.2
2485.3
631.7
-1075.7
Billions of $, seasonally adjusted, annual rates
Federal Government Receipts & Expenditures
Current receipts
Current tax receipts
Personal current taxes 1
Taxes on production and imports 2
Taxes on corporate income
Contributions for government social insurance
Current surplus of government enterprises 5
Current expenditures
Consumption expenditures
Current transfer payments
Government social benefits
Other current transfer payments
Grants-in-aid to state and local governments
To the rest of the world (net) 6
Interest payments 3
Subsidies 5
Net federal government saving
I
2900.1
1711
1252
118.8
321
1081.7
-20.6
3753.2
982.3
2327.2
1848.1
479.2
431.5
47.6
386.1
57.5
-853.1
2013
II
3166.9
1742.5
1275.7
118.6
328.7
1091.2
-23.8
3820.1
976
2347.1
1849.0
498.1
445.7
52.4
438.4
58.5
-653.1
III
2976.1
1760.7
1292.2
119.3
329.3
1096.9
-25.9
3825.7
972.4
2372.0
1862.8
509.2
455.7
53.5
422.7
58.6
-849.7
Billions of $, seasonally adjusted, annual rates
Interpreting the GDP
• From the circular flow, we get:
Income = Y = C + S + T
Income = Expenditures
Y = C + I + G + (Ex-Im)
• Substitute, cancel C and rearrange to get:
S + T + Im = I + G + Ex
Leakages = Injections
Interpreting the GDP
• Further rearrange to get:
I = S + (T-G) + (Im-Ex)
• Investment comes from three sources:
– Private sector savings.
– Government “savings.”
– Foreign sector savings.
• Where economic growth is primarily determined
by investment . . .
2011: $2.34 t ≈ $2.83 t - $1.0 t + $570 b
GDP as the sum of “values added”
• Finding C, I, G and net X is difficult.
• Values are estimated based on statistical
analysis.
• GDP is calculated by adding up all values
added.
VA = (sales revenue) – (cost of inputs)
• This data is obtainable from tax info.
GDP: Nominal vs. Real
• Nominal = “current dollar” value
• Real = “constant dollar” value
2013
Q
P
bread
100 $2.50
shoes
9
$22.50
movies
15
$8.00
hammocks 2
$45
current dollar
Q*P
$250.00
$202.50
$120.00
$90.00
$662.50 GDP
GDP: Nominal vs. Real
• Nominal = “current dollar” value
• Real = “constant dollar” value
2014
2013
Q
P
bread
100
95
$3.00
$2.50
shoes
10
9
$23.00
$22.50
movies
17
15
$8.00
hammocks 2
$45
current dollar
Q*P
$285.00
$250.00
$230.00
$202.50
$136.00
$120.00
$90.00
$741.00
$662.50 GDP
11.8%
GDP: Nominal vs. Real
• Nominal = “current dollar” value
• Real = “constant dollar” value
2014
2013
Q
P
bread
95
$2.50
100
$3.00
shoes
10
$22.50
9
$23.00
movies
17
$8.00
15
hammocks 2
$45
constant
dollar
current dollar
Keep new
quantities
Use old
prices
Q*P
$237.50
$285.00
$250.00
$225.00
$230.00
$202.50
$136.00
$120.00
$90.00
$688.50
$741.00
$662.50 GDP
11.8%
3.9%
Next – GDP Issues
• What are we really measuring?
• What are we trying to measure?
• How good a job to we do at this?
• What gets left out?
• Are there better measures?
• Why do we even want to
measure economic activity?
National Income Accounting
Dr. Dennis Foster
GDP – Work Problem
From the following information calculate the GDP
D business inventories
Durable goods
Exports
Gov't transfer payments
Imports
National defense
Net Domestic Product
New construction
New equipment
$
36.6
$ 630.5
$ 844.3
$ 1,062.0
$ 964.5
$ 348.8
$ 6,752.3
$ 213.5
$ 593.5
Nondurable goods
Other federal gov't
personal interest income
Proprietor's income
Rental income
Residential construction
Services
State & local gov't
Wages & salaries
$ 1,546.5
$ 176.7
$ 743.0
$ 526.3
$ 127.0
$ 312.6
$ 2,988.5
$ 889.3
$ 4,483.0