OVERVIEW OF THE NATIONAL INCOME AND PRODUCT ACCOUNTS

The purposes of this section are to present an overview of the NIPAs, the standard to which we refer often throughout this report, and to provide a basis of comparison for concepts and data needs for the nonmarket accounts described in subsequent chapters. National income and product accounting is the centerpiece of national economic accounting in the United States. The NIPAs show the real and nominal value of output, the composition of output, and the distribution across types of income generated in its production.

There are three other major branches of national economic accounting—capital finance accounting, balance sheet accounting, and input-output accounting. The capital finance accounts are better known as the flow-of-funds accounts. They show the role of financial institutions and instruments in transforming saving into investment and the associated changes in assets and liabilities. These changes occur as monetary flows over time, resulting in an increase or depreciation in the stock (the accumulated amount) of the asset. Balance-sheet accounts display these assets and liabilities at particular points of time. Input-output accounts trace the flow of goods and services among industries in the production process, and show the value added by each industry and the detailed commodity composition of output. Input-output matrices, particularly the benchmark input-output matrices, are a foundation for the NIPAs. Other accounts, specifically the international and the regional accounts, are also important sources of information for the national accounts (Bureau of Economic Analysis, 1985). These other accounts are mentioned only briefly in this chapter.

In the NIPAs’ double-entry accounting system, domestic output can be measured by either gross domestic product (GDP) or gross domestic income (GDI). GDP is measured as the market value of goods and services produced by labor and property located in the United States. GDI is measured as the costs incurred and the incomes earned in the production of GDP. Business purchases from other businesses are netted out so that domestic output is an unduplicated total. In theory, nominal GDP should equal nominal GDI; because the two sides of the accounts are measured using independent and imperfect data, however, the aggregates typically do not match. The statistical discrepancy, which is recorded as an income component, is equal to nominal GDP less nominal GDI. Within a production function framework, GDP represents the economy’s output and GDI represents the capital and labor inputs used in its production, plus taxes on production (such as sales and excise taxes) and the surplus of government enterprises.

In the United States, GDP is measured using an expenditure approach. GDP, as shown in Table 2-1, is equal to the sum of personal consumption expenditures, gross private domestic investment, net exports of goods and services (exports minus imports), and government consumption expenditures and gross invest-



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