1. National Income Accounting
Dr. Dennis Foster

2. 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)
2017 Q4 = $19.74 t (Current $)

3. Consumption = Durable goods ($1.52 t) Non-durable goods ($2.89 t)
Cars ($298 b), electronics, clothes, others
Non-durable goods ($2.89 t)
Food ($915 b), gasoline ($306 b), others
Services ($9.24 t)
Household consumption ($8.86 t)
Housing & utilities ($2.48), health care ($2.3), transportation ($.40), recreation ($.52 t), others
2017 Q4 = $13.65 t

4. Gross Private Investment =
Nonresidential ($2.51 t)
Equipment & software ($1.14 t), structures ($564 b)
Residential ($765 b)
= Fixed Investment ($3.28 t)
Change in business inventories ($8.8 b)
2017 Q4 = $3.29 t

5. FRED – Total Business Inventories
Nov. 2017
$1.895 tr.

6. Government = Federal ($1.28 t) State and Local ($2.13 t)
National defense ($760 b)
State and Local ($2.13 t)
Transfer payments (SS, Medicare, et. al) are not included in government expenditures. For 2017 Q4 this was $2.9 t. (annual rate).
2017 Q4 = $3.40 t

7. Net Exports = Exports ($2.42 t) Imports ($3.02 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.
2017 Q4 = -$599 b

8. FRED – Net Exports (Real $)
Q4 2017
-$652 b.

9. FRED – Net Exports (Constant $)
Q4 2017
-$599 b.

10. 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 $ $ $ $ $1.1
in trillions of $

11. 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

12. 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.
From the 2013 ERP:
Table B-32 shows private sector savings as $2.83 t (net plus CCA, ) and government as -$1 t (net plus CCA, ) and total gross domestic investment (private + government) as $2.34 t. From Table B-1, we get net exports as -$570 b, so the foreign sector saving is shown as +$570 b.
Where economic growth is primarily determined by investment . . .
2011: $2.34 t ≈ $2.83 t - $1.0 t + $570 b

13. 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.

14. GDP: Nominal vs. Real Nominal = “current dollar” value
Real = “constant dollar” value

15. GDP: Nominal vs. Real Nominal = “current dollar” value
Real = “constant dollar” value

16. GDP: Nominal vs. Real Nominal = “current dollar” value
Real = “constant dollar” value
Keep new quantities
Use old prices

17. From the following information calculate: C, I, G, net X and GDP
GDP – Work Problem 1
From the following information calculate: C, I, G, net X and GDP

18. GDP – Work Problem 2
Consider a very limited economy that is comprised of the following 6 good. We have data on prices and quantities of each good for years 1, 2 and 3. Use this to: a. Calculate Nominal GDP for each year. b. Calculate Real GDP for each year using year 1 prices. c. Calculate the nominal and real growth rates from year 1 to year 2. d. Calculate the nominal and real growth rates from year 2 to year 3.

19. 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?

20. National Income Accounting
Dr. Dennis Foster