National Income and Product AccountsThe NIPA accounts are a conceptual frame-work for organizing data on the productionof goods and services and on the incomesreceived by factors of production.Gross Domestic Product ( GDP):Nominal GDP is the value (in current-year prices) of all final goods andservices produced domestically over a period of time.Real GDP is the value (in base-year prices) of all final goods and servicesproduced domestically over a period of time.• Counts Final NOT Intermediate goods• Goods vs Services• Geographical Concept• GDP vs GNP• Three Accounting Approaches1The Expenditure Approach:• Yt=ipityitand Yt= Ct+ It+ Gt+ NXt• pitand yit- price and quantity of final good i produced at time t• we sum over ALL the different final goods which are indexed by i• Conceptually this approach is very clean ... but for some goods it maynot be clear how to divide the expenditure into price and quantity com-ponents.• Many final goods are not included in GDP. GDP accountants imputea value for some goods even though no price, quantity or expendituredata are directly available (e.g. implicit rental value of owner-occupiedhousing).2Home National International Regional Industry Interactive Data About BEAFAQsContact UsAbout National Methodologies Articles Release Schedule Staff Contacts Email SubscriptionsFirst Year Last Year Series: Annual(A) Quarterly(Q) Monthly(M)Get all years HTML Locking Stubs (Enables graph and chart generation) What is that?Home > National Economic Accounts> Interactive Table Home>Table Selection>View TableHelp on NIPA Tables Index to NIPA TablesNational Income and Product Accounts TableTable 1.1.5. Gross Domestic Product[Billions of dollars]Today is: 1/16/2012 Last Revised on December 22, 2011 Next Release Date January 27, 2012Data Table Options Tools OptionsLine 2010 1 Gross domestic product 14,526.52 Personal consumption expenditures 10,245.53 Goods 3,387.04 Durable goods 1,085.55 Nondurable goods 2,301.56 Services 6,858.57 Gross private domestic investment 1,795.18 Fixed investment 1,728.29 Nonresidential 1,390.110 Structures 374.411 Equipment and software 1,015.712 Residential 338.113 Change in private inventories 66.914 Net exports of goods and services -516.915 Exports 1,839.816 Goods 1,277.817 Services 562.018 Imports 2,356.719 Goods 1,947.320 Services 409.421 Government consumption expenditures and gross investment3,002.822 Federal 1,222.823 National defense 819.224 Nondefense 403.625 State and local 1,780.0Help with Comma Separated Value (CSV) DownloadFirst Year Last Year Annual(A) Quarterly(Q) Monthly(M)Small Font Legal Letter Landscape Portrait U.S. Department of Commerce. Bureau of Economic Analysis http://www.bea.gov/national/nipaweb/TableView.asp?SelectedTable=5&ViewSeries=NO&Jav...1 of 2 1/16/2012 10:20 AMValue Added Approach• Y =iVAi• VAi- value added of firm i• VAi= Salesi− V alue Intermediate GoodsP urchasedi• It turns out that the value added approach is simply a tricky way to addup the expenditure on all final goods. Why is that?3Income Approach• Y = National Income+Indirect T ax+Depreciation−Net F oreign F actor Income• National Income = Wages+ Profit+ Rent + Prop Income+ Interest• The income approach starts from a simple idea (the plumbing diagram)but is ”ugly” to execute.• Ugly Feature 1: Indirect Tax• Ugly Feature 2: Depreciation• Ugly Feature 3: Net Foreign Factor Income4Simple Example: 1Farmer produces 10 units of wheat using laborMiller produces 10 units of flour using 10 wheat andlaborBaker produces 10 units of bread using 10 flour andlaborWhat is GDP if pb=4,pf=2,pw=1?5Expenditure Approach:Y =ipiyi= pwyw+pfyf+pbyb=1·0+2·0+4·10 = 40Value Added:Y =iVAi= VA1+ VA2+ VA3Y =(10− 0) + (20 − 10) + (40 − 20) = 406Simple Example: 2Firm 1 produces $20 of consumption good and Firm2 produces $20 of an investment good. Both firmsare organized as corporations.Profit1= Revenue1− Wages1− Dep1=20− 20− 0=0Profit2= Revenue2− Wages2− Dep2=20− 10− 5=5What is GDP?7Income Approach:Y = Wages+ CorpP rofit + DepreciationY =35+5+5=40What would happen to GDP calculations if the corpo-rate tax accounts decided to change their proceduresand end up computing depreciation differently?8Compar ing GDP across countries:Method 1: Exchange rateCompare: YIndia= e∗ipIndiaiyIndiaand YUS=ipUSiyUSMethod 2: PPP methodCompare: YIndia=ipworldiyIndiaand YUS=ipworldiyUSpworldi- average of relative prices of good i across countries9Changes in the Wealth of NationsAuthors: Parente and PrescottGoal: Document facts about the distribution of GDP per capitaacross countries at a point in time and over time. Measure GDPusing PPP approach. Data come (mostly) from the Penn WorldTables.10Price Indicies• CP It=ipitxiip∗ixi- fixed weight index• Deflatort=ipityitip∗iyit- variable weight index• xi- quantity of good i in the basket• yit- quantity of final good i produced in year t• pitand p∗i- price good i at time t and in the base year11Bias in the CPIA Cost-of-Living Index measures the minimum cost of obtaining a fixed levelof utility or welfare over time as market prices change. The CPI measuresthe cost of a fixed basket over time. Thus, there may be a bias in the CPIwhen it is taken as a ”Cost-of-Living Index”.• Moulton (1996) discusses CPI construction and sources of bias• Substitution Bias• Quality Adjustment Bias• New Goods