National Income Accounting (NIA)

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National Income Accounting (NIA)
NIA is the measurementof aggregate or
totaleconomic activity
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Stocks versus Flows
We measure stockvariables at a specific point
intime whereasflows are measuredper unit of
time.
Flows include

• Income
• Sales revenue
• Output

Stocks include
We measure economicactivity as aflow.

• Checking account balance
• Balance owed on student loans
• Inventories

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Gross Domestic Product (GDP)
GDP is the market value of new goods and services
produced in the economy in one year with the use
of both domestic and foreign-owned economic
resources.
GDP is our basicmeasure of economicactivity
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Three approaches to measuring GDP

• The value-added approach
• The final goods approach
• The income approach

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Value-Added
Value-added is the increase in the market value
of a good that takes place at each stage of the
production -distribution process.
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Illustration

• Stage 1 Farmer grows wheat, sells it to the
  Miller for 55 cents.
• Stage 2 Miller mills the wheat, sells it to the
  Baker for 85 cents--hence value-added at the
  milling stage is 30 cents.
• Stage 3 Baker bakes the bread--sells it to the
  supermarket for 1.45--hence value-added at the
  baking stage is 60 cents.
• Stage 4 Supermarket sells the bread to the
  consumer for 1.65--hence value added at the
  retailing stage is 20 cents.

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Don't double count!
?To count the loaf of bread in GDP, we count the
final transaction only. Otherwise, we would be
counting value-added twice.
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Two Approaches to U.S. GDP, 1997
Source Bureau of Economic Analysis
(www.bea.doc.gov/bea)

• Final Goods (in millions)
• Consumption
  5,486
• Investment
  1,243
• Government Expenditures 1,453
• Exports
  957
• Imports
  - 1,058
• Total
  8,081

• Income Approach (in millions)
• Employee compensation 4,704
• Profits, rents, interest, etc. _at_
  2,758
• Indirect businesstaxes
  619
• Total
  8,081_at_includes capital consumption adjustment
  and statistical discrepancy

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Relation of GDP to GNP, NNP, National Income, and
Personal Income
All data in millions of current dollars
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Source Bureau of Economic Analaysis
(www.bea.doc.gov)
From National Income to Personal Income
All data in millions of dollars