National Income and Product Accounts

National Income and Product Accounts

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The National Income and Product Accounts (NIPA) are part of the 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...

 of the United States. They are produced by the Bureau of Economic Analysis of the Department of Commerce. They are one of the main sources of data on general economic activity in the United States.

They use double-entry accounting to report the monetary value and sources of output produced in the country and the distribution of incomes that production generates. Data are available at the national and industry levels.

Seven summary accounts are published, as well as a much larger number of more specific accounts. The first summary account shows Gross Domestic Product
Gross domestic product
Gross domestic product refers to the market value of all final goods and services produced within a country in a given period. GDP per capita is often considered an indicator of a country's standard of living....

 (GDP) and its major components.
The table summarizes national income on the left (debit, revenue) side and national product on the right (credit, expense) side of a two-column accounting report. Thus the left side gives GDP by the income method, and the right side gives GDP by the expenditure method.
The GDP is given on the bottom line of both sides of the report. GDP must have the same value on both sides of the account. This is because income and expenditure are defined in a way that forces them to be equal (see accounting identity
Accounting identity
In finance and economics, an accounting identity is an equality that must be true regardless of the value of its variables, or a statement that by definition must be true. The term is also used in economics to refer to equalities that are by definition or construction true, such as the balance of...

). We show the 2003 table later in this article; we present the left side first for convenient screen display.

The U.S. report (updated quarterly) is available in several forms, including interactive, from links on the Bureau of Economic Analysis (BEA) NIPA (http://www.bea.gov/index.htm) page. International norms for national accounting methods are given by the United Nations System of National Accounts
United Nations System of National Accounts
The United Nations System of National Accounts is an international standard system of national accounts, the first international standard being published in 1953...

. The NIPAs are prepared by the staff of the Directorate for National Economic Accounts within the BEA. The source data largely originate from public sources, such as government surveys and administrative data, and they are supplemented by data from private sources, such as data from trade associations (BEA 2008: 1-6).

Accounting for National Income: the left side of the report


The income side of the National Income and Product Account report begins with the kinds of income people might have. Employee compensation includes the wages and salaries paid to anyone whose income is subject to income tax withholding. Since wages and salaries affect more individuals and families directly than the other sources of income, it has by far the largest value.

Table 1: Revenue uses of GDP

National Income and Product Accounts of the U.S.
[Billions of current US$]
Income Accounts 1   | 2003
Employee compensation 2   6,289.00
Proprietors' income with IVA and CCA 3   834.10
Rental income of persons with CCA   153.80
Corporate profits with IVA and CCA 4   1,021.10
Net interest and miscellaneous payments   543.00
Taxes on production and imports   798.10
Less: Subsidies   −46.70
Business current transfer payments (net)   77.70
Current surplus of government enterprises   9.50
Equals: National Income (NI)   9,679.60
Statistical discrepancy   25.60
Equals: Net National Product (NNP)   9,705.20
Consumption of fixed capital   1,353.90
Equals: Gross National Product (GNP)   11,059.10
Income receipts from the rest of the world   273.90
Less: Income payments to the rest of the world   −329.00
Equals: Gross domestic product (GDP) 5   11,004.00
   


Proprietors' income is the payments to those who own non-corporate businesses, including sole proprietors and partners. Inventory Value Adjustment (IVA) and Capital Consumption Adjustment (CCA) are corrections for changes in the value of proprietor's inventory (goods that may be sold within one year) and capital (goods like machines and buildings that are not expected to be sold within one year) under rules set by the U.S. Internal Revenue Service (IRS).

Rental income of persons excludes rent paid to corporate real estate
Real estate
In general use, esp. North American, 'real estate' is taken to mean "Property consisting of land and the buildings on it, along with its natural resources such as crops, minerals, or water; immovable property of this nature; an interest vested in this; an item of real property; buildings or...

 companies. Real estate is capital rather than inventory by definition, so there is no IVA.

Corporate profits with IVA and CCA is like the entries for proprietors' income and rental income except that the organization is a corporation. Corporate profit is shown before taxes, which are part of Taxes on Production and imports, two lines down.

Business current transfer payments is not explained here.

Net interest and miscellaneous payments is interest paid minus interest received plus payments to individuals and corporations that are not elsewhere classified (NEC). Taxes on production and imports does not include corporate income tax payments to the states and to the federal government. Taxes on production and imports were previously classifed as "indirect business taxes" and include excise taxes, sales taxes, property taxes, and other taxes relating to business production. While the report includes the net value of interest payments and receipts, both the taxes paid and subsidies from the government are shown.

National Income (NI) is the sum of employees, proprietors, rental, corporate, interest, and government income less the subsidies government pays to any of those groups.

Net National Product (NNP) is National Income plus or minus the statistical discrepancy that accumulates when aggregating data from millions of individual reports. In this case, the statistical discrepancy is US$25.6 billion, or about 0.23% of Gross Domestic Product. A discrepancy that small (less than three-tenths of one percent) is immaterial under accounting standards.

Gross National Product (GNP) is Net National Product plus an allowance for the 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...

, mostly buildings and machines, usually called depreciation. Capital is used up in production but it does not vanish.

Finally, Gross Domestic Product
Gross domestic product
Gross domestic product refers to the market value of all final goods and services produced within a country in a given period. GDP per capita is often considered an indicator of a country's standard of living....

 (GDP) is Gross National Product plus payments from the rest of the world that are income to residents of the U.S. minus payments from the U.S. to the rest of the world that count as income where they are received.
Accounting for National Product: The Right Side of the Report
Macroeconomics
Macroeconomics
Macroeconomics is a branch of economics dealing with the performance, structure, behavior, and decision-making of the whole economy. This includes a national, regional, or global economy...

 defines GDP, from the production perspective, as the sum of personal consumption, investment, net exports, and government expenditures; .

Table 2: Production sources of gross domestic GDP

National Income and Product Accounts of the U.S.
[Billions of current US$]
Product accounts 1 2003
Durable goods 950.70  
Nondurable goods 2,200.10  
Services 4,610.10  
Personal consumption expenditures   7,760.90
Nonresidential 1,094.70  
Residential 572.30  
Change in private inventories −1.20  
Gross private domestic investment   1,665.80
Exports 1,046.20  
Less: Imports −1,544.30  
Net exports of goods and services   −498.10
Federal 752.20  
State and local 1,323.30  
Government consumption expenditures    
and gross investment   2,075.50
Gross domestic product (GDP) 5   11,004.10
   


The production side report also begins with individuals and families, in this case their Personal Consumption Expenditures on goods and services, C in the definition. Durable goods are expected to last more than a year (furniture, appliances, cars, etc.) and to have little or no secondary resale market. Nondurable goods are used up within a year (food, clothing, medicine...). Services includes everything else, everything we buy that has little or no physical presence, like banking, health care, insurance, movie tickets, and so on.

Gross private domestic investment
Gross private domestic investment
Gross private domestic investment is the measure of investment used to compute GDP. This is an important component of GDP because it provides an indicator of the future productive capacity of the economy. It includes replacement purchases plus net additions to capital assets plus investments in...

 includes expenditures on goods that are expected to be used for an extended period of time, I in the definition. Residential investment includes owner occupied and rental housing. Nonresidential investment includes buildings, machinery, and equipment used for commercial or industrial purposes (small business, agriculture, manufacturing, service, etc.). The last element of Investment accounts for any change in the value of previous investments that are still in use, called inventory.

Net Exports reports the balance between goods produced domestically but consumed abroad (X) and goods produced abroad but consumed domestically (M). There is no distinction between consumption and investment or between the private and public sectors; a consumer's imported television, a corporation's imported lab equipment, and the government's use of imported food on military bases count equally. When Net Exports are positive, the country has a trade surplus. When Net Exports are negative, there is a trade deficit.

Government Consumption Expenditures and Gross Investment includes all government expenditures on domestically produced goods and services. Like an individual or family, the government consumes food, clothing, furniture, and other goods and services in its administrative, military, correctional, and other programs. Governments also invest in buildings for program use and in improvements to harbors, rivers, roads, and airports. Transfer payment
Transfer payment
In economics, a transfer payment is a redistribution of income in the market system. These payments are considered to be exhaustive because they do not directly absorb resources or create output...

s, like subsidies to the unemployed or the retired, are not included in this item, since they are simply a movement of money from government to citizens, rather than a purchase of goods or services.

The sum of the four production categories is Gross Domestic Product, the value of all domestic expenditures on goods and services. GDP (Income) must equal GDP (Production) except for any rounding error that accumulates when the data used to prepare a table includes rounding at prior stages of analysis, as appears to have happened in this case.

See also

  • Aggregation problem
    Aggregation problem
    An aggregate in economics is a summary measure describing a market or economy. The aggregation problem refers to the difficulty of treating an empirical or theoretical aggregate as if it reacted like a less-aggregated measure, say, about behavior of an individual agent as described in general...

  • Macroeconomics
    Macroeconomics
    Macroeconomics is a branch of economics dealing with the performance, structure, behavior, and decision-making of the whole economy. This includes a national, regional, or global economy...

  • 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...

  • United Nations System of National Accounts
    United Nations System of National Accounts
    The United Nations System of National Accounts is an international standard system of national accounts, the first international standard being published in 1953...

  • Measures of national income and output
    Measures of national income and output
    A variety of measures of national income and output are used in economics to estimate total economic activity in a country or region, including gross domestic product , gross national product , and net national income . All are specially concerned with counting the total amount of goods and...

  • Classification of Individual Consumption by Purpose
    Classification of Individual Consumption by Purpose
    Classification of Individual Consumption according to Purpose is a Reference Classification published by the United Nations Statistics Division that divides the purpose of individual consumption expenditures incurred by three institutional sectors, namely households, non-profit institutions...


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