Gross Output

Gross Output

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Gross output is an economic concept used in national accounts
National accounts
National accounts or national account systems are the implementation of complete and consistent accounting techniques for measuring the economic activity of a nation. These include detailed underlying measures that rely on double-entry accounting...

 such as the United Nations System of National Accounts (UNSNA) and the US National Income and Product Accounts (NIPA
Nipa
NIPA, Nipa or nipah may refer to:* Nipa palm, Nypa fruticans* Nipa grass, Distichlis palmeri* Nipah virus, a Henipavirus* National Income and Product Accounts * National Institute of Public Administration...

). It is equal to the value of net output or GDP (also known as gross value added
Gross value added
Gross Value Added ' is a measure in economics of the value of goods and services produced in an area, industry or sector of an economy...

) plus intermediate consumption
Intermediate consumption
Intermediate consumption is an economic concept used in national accounts, such as the United Nations System of National Accounts , the US National Income and Product Accounts and the European System of Accounts .Conceptually, the aggregate "intermediate consumption" is equal to the amount of the...

.

Gross output represents, roughly speaking, the total value of sales by producing enterprises (their turnover
Turnover
-Business:*Turnover is sometimes a synonym for revenue , especially in European and South African usage.Services sold by a company during a particular period of time....

) in an accounting period (e.g. a quarter or a year), before subtracting the value of intermediate goods used up in production. This description is not quite accurate though, among other things because flows and imputations relating to government services and households are also included.

To obtain a measure of gross value added
Value added
In economics, the difference between the sale price and the production cost of a product is the value added per unit. Summing value added per unit over all units sold is total value added. Total value added is equivalent to Revenue less Outside Purchases...

 or Net output
Net output
Net output is an accounting concept used in national accounts such as the United Nations System of National Accounts and the NIPAs, and sometimes in corporate or government accounts. The concept was originally invented to measure the total net addition to a country's stock of wealth created by...

, the value of intermediate goods and services
Intermediate consumption
Intermediate consumption is an economic concept used in national accounts, such as the United Nations System of National Accounts , the US National Income and Product Accounts and the European System of Accounts .Conceptually, the aggregate "intermediate consumption" is equal to the amount of the...

 must be subtracted from gross output. Net value added is obtained by additionally subtracting consumption of fixed capital
Consumption of fixed capital
Consumption of fixed capital is a term used in business accounts, tax assessments and national accounts for depreciation of fixed assets...

 (depreciation
Depreciation
Depreciation refers to two very different but related concepts:# the decrease in value of assets , and# the allocation of the cost of assets to periods in which the assets are used ....

).

Definition of production


The statistical definition of gross output is dependent upon the definition of production
Production, costs, and pricing
The following outline is provided as an overview of and topical guide to industrial organization:Industrial organization – describes the behavior of firms in the marketplace with regard to production, pricing, employment and other decisions...

 applied. Typically some economic flows
Stock and flow
Economics, business, accounting, and related fields often distinguish between quantities that are stocks and those that are flows. These differ in their units of measurement. A stock variable is measured at one specific time, and represents a quantity existing at that point in time , which may have...

 and activities are excluded from coverage in calculating the value of gross output, on the ground that they are unrelated to production in the domestic economy. These include certain foreign transactions, property income, transfers, land sales, and various government disbursements, unpaid housework and voluntary work. On the other hand, items are included which some economists would regard as spurious, such as the imputed rental value of owner-occupied housing (this is the average rents, at market rates, which owners of residential housing would receive if they rented out the housing they occupy).

Presentations in UNSNA accounts and US national accounts


In the UNSNA standard "product account", gross output is the largest aggregate, and it is shown how GDP is derived from it, via subtracting intermediate consumption
Intermediate consumption
Intermediate consumption is an economic concept used in national accounts, such as the United Nations System of National Accounts , the US National Income and Product Accounts and the European System of Accounts .Conceptually, the aggregate "intermediate consumption" is equal to the amount of the...

. However, in the American NIPA
Nipa
NIPA, Nipa or nipah may refer to:* Nipa palm, Nypa fruticans* Nipa grass, Distichlis palmeri* Nipah virus, a Henipavirus* National Income and Product Accounts * National Institute of Public Administration...

 system, no annual totals for gross output and intermediate consumption are shown in the product account, the focus being on GDP and its components only - gross output and intermediate consumption are cited only in the input-output tables compiled for intermittent years. Thus, to find annual data for gross output and intermediate consumption of the United States, one needs to refer to UNSNA data sets.

Gross output versus net output


Gross and net output are frequently confused with each other in economic discourse, insofar as the net output of a particular industry or economic sector is assumed to refer to the total sale value of its products produced during an accounting interval. This is however not the case, because the net output of a sector refers only to the value-added by that sector, equal to the factor income
Factor income
Factor income is income derived from selling the services of factors of production. In the case of labour, this means wages, plus the part of the incomes of the self-employed which is a reward for their own labour. Income from land is rents, including part of the incomes of the self-employed, and...

 it generates. The total value of its output is in reality its gross output, which includes the value of materials and operating costs used to produce the output. It is only the net output of the whole economy (equal to GDP) which provides a measure of the total value of all new goods and services produced together. If, say, a car factory produces a car, the value of the car includes both labour costs, tax imposts and gross profit (its value-added, which is its contribution to GDP), but also the value of materials and services used up to make the car, which are inputs purchased from other sectors (or imported) that are used up in production. Since the inputs of one industry are the outputs of another, goods and services used up in production have to be subtracted from the grand total of output sales in the whole economy in order to obtain a grand total for the net output value in the whole economy. But at the level of an individual sector, the total value of the goods and services it produced in an accounting interval is not the net output, but the gross output.

Sector transactions


Typically national accounts are sectorized, i.e. separate accounts are compiled for distinct industry output sectors such as manufacturing, agriculture, and different services; economic sectors such as market and non-market sectors; and institutional sectors such as the public sector, the private sector and households. Thus it is usually possible to obtain measures of the gross output for different sectors of the economy.

The transactions between different sectors who purchase inputs and sell outputs to each other are analyzed by national statistical offices using an input-output model
Input-output model
In economics, an input-output model is a quantitative economic technique that represents the interdependencies between different branches of national economy or between branches of different, even competing economies. Wassily Leontief developed this type of analysis and took the Nobel Memorial...

. The input-output matrix
Matrix (mathematics)
In mathematics, a matrix is a rectangular array of numbers, symbols, or expressions. The individual items in a matrix are called its elements or entries. An example of a matrix with six elements isMatrices of the same size can be added or subtracted element by element...

 tables which are calculated every few years by statistical offices provide a means to assess the effect which the growth or decline of particular sectors has on other sectors of the economy, which either buy its products or supply goods and services to them. They show, for each sector, the value of the inputs it purchases from other sectors, and the value of purchases of its gross output by other sectors. Sectoral output
Sectoral output
Sectoral output for an industry or combination of industries is the value of the sector's gross output minus the value of shipments within the sector from one establishment to another....

 is the value sold by an industry to other industries; it excludes that output sold within the industry itself.

See also

  • GDP
  • Intermediate consumption
    Intermediate consumption
    Intermediate consumption is an economic concept used in national accounts, such as the United Nations System of National Accounts , the US National Income and Product Accounts and the European System of Accounts .Conceptually, the aggregate "intermediate consumption" is equal to the amount of the...

  • Net output
    Net output
    Net output is an accounting concept used in national accounts such as the United Nations System of National Accounts and the NIPAs, and sometimes in corporate or government accounts. The concept was originally invented to measure the total net addition to a country's stock of wealth created by...

  • United Nations System of National Accounts (UNSNA)
  • National accounts
    National accounts
    National accounts or national account systems are the implementation of complete and consistent accounting techniques for measuring the economic activity of a nation. These include detailed underlying measures that rely on double-entry accounting...

  • Input-output table
  • GNP
    GNP
    Gross National Product is the market value of all products and services produced in one year by labor and property supplied by the residents of a country...