copyright 2008 the mcgraw-hill companies 6-1 6 measuring domestic output and national income

Copyright 2008 The McGraw-Hill Companies6-1

6Measuring Domestic Measuring Domestic Output and National Output and National IncomeIncome


Learning objectivesLearning objectives • In this chapter you will learn:In this chapter you will learn:

A.A. How gross domestic product (GDP) is defined and How gross domestic product (GDP) is defined and measured.measured.B.B. The relationships between GDP, net domestic product, The relationships between GDP, net domestic product, national income, personal income, and disposable income.national income, personal income, and disposable income.C.C. The nature and function of a GDP price index.The nature and function of a GDP price index.D.D. The difference between nominal GDP and real GDP.The difference between nominal GDP and real GDP.E.E. Some limitations of the GDP measure.Some limitations of the GDP measure.


Assessing the Economy’s PerformanceAssessing the Economy’s Performance• National income accountingNational income accounting measures the economy’s measures the economy’s

performance by measuring the flows of income and performance by measuring the flows of income and expenditures over a period of time. National income expenditures over a period of time. National income accounts enable us to:accounts enable us to:

a.a. Measure the economy’s overall performanceMeasure the economy’s overall performance by measuring by measuring the flows of income and expenditures over a period of time the flows of income and expenditures over a period of time (Assess the health of the economy)(Assess the health of the economy)

b.b. Track the long run course of the economy: growing, Track the long run course of the economy: growing, declining, or constant declining, or constant (compare conditions over time and (compare conditions over time and across countries)across countries)

c.c. Provide a basis for appropriate public policies to improve Provide a basis for appropriate public policies to improve economic performanceeconomic performance (improve the economy’s health) (improve the economy’s health)


Gross Domestic ProductGross Domestic Product

GDPGDP is the is the monetary measure of the total monetary measure of the total market value market value of all of all final final goods and services goods and services produced within a country produced within a country in one yearin one year..

Note GDP is a monetary measure i.e., Note GDP is a monetary measure i.e., GDP=Quantities of goods and sericves GDP=Quantities of goods and sericves xx prices prices

1.1. Money valuationMoney valuation allows the summing of apples and oranges; allows the summing of apples and oranges; money acts as the common denominator. (See Table 6.1.)money acts as the common denominator. (See Table 6.1.)

2.2. GDP includes only finalGDP includes only final products and services products and services (goods and (goods and services purchased for final use, not for resale or services purchased for final use, not for resale or reprocessing or manufacturing)reprocessing or manufacturing); it avoids double or ; it avoids double or multiple countingmultiple counting, by eliminating any , by eliminating any intermediate goodsintermediate goods used in production of these final goods or services. (Table 6.2 used in production of these final goods or services. (Table 6.2 illustrates how including sales of intermediate goods would illustrates how including sales of intermediate goods would overstate GDP.)overstate GDP.)

3.3. GDP is the value of what has been producedGDP is the value of what has been produced in the economy in the economy over the year, over the year, notnot what was what was actually soldactually sold..


Example

Suit production

stages of production

sales value of materials or product Value added

0 firm A: sheep ranch 120 120 (=120-0) firm B: wool processor 180 60 (=180-120) firm C: suit manufacturer 220 40 (=220-180) firm D: Clothing wholesaler 270 50 (=270-220) firm E: Retail Clothier 350 80 (=350-270) Total Sales value 1140 Value Added 350

Two ways to calculate GDP


GDP Excludes GDP Excludes Non-productionNon-production Transactions TransactionsGDP is designed to measure what is GDP is designed to measure what is producedproduced oror createdcreated over the current time period. over the current time period.

1.1. Existing assets or property Existing assets or property that are sold or that are sold or transferred, including used items, are not transferred, including used items, are not countedcounted..

2.2. Purely financial transactionsPurely financial transactions are excluded. are excluded.a.a. Public transfer payments, like social security or cash Public transfer payments, like social security or cash

welfare benefits.welfare benefits.b.b. Private transfer payments, like student allowances or Private transfer payments, like student allowances or

alimony payments.alimony payments.c.c. The sale of stocks and bonds represent a transfer of The sale of stocks and bonds represent a transfer of

existing assets. (However, the brokers’ fees are included existing assets. (However, the brokers’ fees are included for services rendered.)for services rendered.)

3.3. Secondhand salesSecondhand sales are excluded, they do not are excluded, they do not represent current output. (However, any value represent current output. (However, any value added between purchase and resale is included, e.g. added between purchase and resale is included, e.g. used car dealers.)used car dealers.)


Two Ways to Look at GDP: Spending and Income.Two Ways to Look at GDP: Spending and Income.What is spent on a product is income to those who helped to What is spent on a product is income to those who helped to produce and sell it. This is an important identity and the produce and sell it. This is an important identity and the foundation of the national accounting process.foundation of the national accounting process.

Expenditures ApproachExpenditures Approach (See Figure 6.1 and Table 6.3) (See Figure 6.1 and Table 6.3)• GDP is divided into the GDP is divided into the categories of buyerscategories of buyers in the market; in the market;

household consumers, businesses, government, and foreign household consumers, businesses, government, and foreign buyers.buyers.

1.1. Personal Consumption ExpendituresPersonal Consumption Expenditures ( (CC) includes durable ) includes durable goods (lasting 3 years or more), nondurable goods and goods (lasting 3 years or more), nondurable goods and services.services.

2.2. GrossGross Private Domestic Investment- Private Domestic Investment-((IgIg))a.a. All final purchases of machinery, equipment, and tools by All final purchases of machinery, equipment, and tools by

businesses.businesses.b.b. All construction (including residential).All construction (including residential).c.c. Changes Changes in business inventory (±).in business inventory (±).

i.i. If total output exceeds current sales, inventories build up.If total output exceeds current sales, inventories build up.ii.ii. If businesses are able to sell more than they currently produce, If businesses are able to sell more than they currently produce,

this entry will be a negative number.this entry will be a negative number.


Non-investment transactionsNon-investment transactions – despite how the term – despite how the term “investment” is used by the general public, investment does “investment” is used by the general public, investment does notnot include include transfers of ownershiptransfers of ownership of paper assets (stocks and of paper assets (stocks and bonds) or real assets (houses, jewelry, art). Only bonds) or real assets (houses, jewelry, art). Only newly newly created capitalcreated capital is counted as investment. is counted as investment.

Net Private Domestic Investment -Net Private Domestic Investment -(In).(In).i.i. Each year as current output is being produced, existing Each year as current output is being produced, existing

capital equipment is wearing out and buildings are capital equipment is wearing out and buildings are deteriorating; this is called depreciation or deteriorating; this is called depreciation or consumption of consumption of fixed capitalfixed capital..

ii.ii. Gross Investment minus depreciation (Gross Investment minus depreciation (consumption of fixed consumption of fixed capital) capital) is called is called net investmentnet investment..

iii.iii. If more new structures and capital equipment are produced If more new structures and capital equipment are produced in a given year than what are used up, the productive in a given year than what are used up, the productive capacity of the economy will capacity of the economy will expandexpand. (Figure 6.2). (Figure 6.2)

iv.iv. When gross investment and depreciation are equal, a When gross investment and depreciation are equal, a nation’s productive capacity is nation’s productive capacity is staticstatic..

v.v. When gross investment is less than depreciation, an When gross investment is less than depreciation, an economy’s production capacity economy’s production capacity declinesdeclines..


3.3. Government PurchasesGovernment Purchases (of consumption goods and capital (of consumption goods and capital goods) – (goods) – (GG))

• Includes spending by all levels of government (federal, state Includes spending by all levels of government (federal, state and local).and local).

• Includes all direct purchases of resources (labor in Includes all direct purchases of resources (labor in particular).particular).

• This This entry excludesentry excludes transfer payments since these outlays do transfer payments since these outlays do not reflect current production.not reflect current production.

4.4. Net Exports-(XNet Exports-(Xnn))a.a. All spending on final goods produced in Kuwait must be All spending on final goods produced in Kuwait must be

included in GDP, whether the purchase is made here or included in GDP, whether the purchase is made here or abroad.abroad.

b.b. Often goods purchased and measured in Kuwait are Often goods purchased and measured in Kuwait are produced elsewhere (Imports).produced elsewhere (Imports).

c.c. Therefore, net exports, (Xn) is the difference: (exports Therefore, net exports, (Xn) is the difference: (exports minus imports) and can be either a positive or negative minus imports) and can be either a positive or negative number depending on which is the larger amount.number depending on which is the larger amount.

• Summary: GDP = C + Ig + G + XnSummary: GDP = C + Ig + G + Xn


Expenditure Approach1. Personal Consumption Expenditures• Durable Consumer Goods• Nondurable Consumer Goods• Consumer Expenditures for Services2. Gross Private Domestic Investment • Machinery, Equipment, and Tools• All Construction• Changes in Inventories

C

Ig


Expenditure ApproachExpenditure Approach3. Government Purchases3. Government Purchases• Expenditures for Goods and Expenditures for Goods and

ServicesServices• Expenditures for Social CapitalExpenditures for Social Capital4. Net Exports4. Net Exports

XXnn = Exports ( = Exports (XX) – Imports () – Imports (MM))

Putting It All Together:Putting It All Together: GDP = C + I + G + XGDP = C + I + G + Xnn

GDP= $8,746 + 2,105 + 2,363 - 727 = $12,487 in GDP= $8,746 + 2,105 + 2,363 - 727 = $12,487 in 20052005

G

Xn


Income Approach to GDPIncome Approach to GDP (See Table 6.3): Demonstrates how (See Table 6.3): Demonstrates how the expenditures on final products are allocated to resource the expenditures on final products are allocated to resource suppliers.suppliers.

1.1. Compensation of employeesCompensation of employees includes: includes:

• wages, wages,

• salaries, salaries,

• fringe benefits, fringe benefits,

• supplements, supplements,

• and payments made on behalf of workers like social and payments made on behalf of workers like social security and other health and pension plans.security and other health and pension plans.

2.2. RentsRents: payments for supplying property resources : payments for supplying property resources (adjusted for depreciation it is (adjusted for depreciation it is net rentnet rent).).

3.3. InterestInterest: payments from private business to suppliers of : payments from private business to suppliers of money capital.money capital.


4. Proprietors’ income4. Proprietors’ income: income of incorporated businesses, sole : income of incorporated businesses, sole proprietorships, partnerships, and cooperatives.proprietorships, partnerships, and cooperatives.

5. Corporate profits,5. Corporate profits, include: include: • corporate income taxes paid to government, corporate income taxes paid to government, • dividends distributed to the shareholders, dividends distributed to the shareholders, • the remainder is left as the remainder is left as undistributed corporate profitsundistributed corporate profits (also (also

referred to as referred to as retained earningsretained earnings).).6. Taxes on production and imports6. Taxes on production and imports: general sales taxes, excise : general sales taxes, excise

taxes, business property taxes, license fees, and customs taxes, business property taxes, license fees, and customs duties.duties.

• The sum of the above entries equals The sum of the above entries equals national incomenational income: all : all income earned by Kuwaiti supplied resources, whether here income earned by Kuwaiti supplied resources, whether here or abroad, plus taxes on production and imports.or abroad, plus taxes on production and imports.


• Adjustments required to balance both sides of the accountAdjustments required to balance both sides of the account::a.a. Net foreign factor incomeNet foreign factor income: National income measures the : National income measures the

income of Kuwaitis both here and abroad. GDP measures the income of Kuwaitis both here and abroad. GDP measures the output of the output of the geographical Kuwaitgeographical Kuwait regardless of the regardless of the nationality of the contributors. To make this final nationality of the contributors. To make this final adjustment, the income of foreign nationals must be added adjustment, the income of foreign nationals must be added and Kuwaiti income earned abroad must be subtracted. and Kuwaiti income earned abroad must be subtracted. Sometimes this entry is a negative number. (Without this Sometimes this entry is a negative number. (Without this adjustment you have GNP.) adjustment you have GNP.)

b.b. Statistical discrepancyStatistical discrepancy: NIPA accountants add a statistical : NIPA accountants add a statistical discrepancy to national income to equalize the income and discrepancy to national income to equalize the income and expenditures approaches ($43 billion in USA in 2005).expenditures approaches ($43 billion in USA in 2005).

c.c. Depreciation/Consumption of Fixed CapitalDepreciation/Consumption of Fixed Capital: The firm also : The firm also regards the decline of its capital stock as a cost of production. regards the decline of its capital stock as a cost of production. The depreciation allowance is set aside to replace the The depreciation allowance is set aside to replace the machinery and equipment used up. In addition to the machinery and equipment used up. In addition to the depreciation of private capital, public capital (government depreciation of private capital, public capital (government buildings, port facilities, etc.), must be included in this entry.buildings, port facilities, etc.), must be included in this entry.


GDP Approaches ComparedGDP Approaches Compared

Compensation

Rents

Interest

Proprietor’s Income

Corporate Profits

Taxes on Production and

Imports

National Income

Net Foreign Factor Income

Statistical Discrepancy

Consumption of Fixed

Capital

Gross Domestic Product

$ 7125

73

498

939

1352

917

$10,904

-34

43

1574

$ 12,487

Personal Consumption (C)

Gross Private Domestic

Investment (Ig)

Government Purchases (G)

Net Exports (Xn)

Gross Domestic Product

Accounting Statement for the U.S. Economy, 2005in Billions

ReceiptsExpenditures Approach

AllocationsIncome Approach

$ 8746

2105

2363

-727

$ 12,487


Comparative GDPsComparative GDPs

Source: World Bank

Select Nations GDPs - 2005

United StatesJapan

GermanyChina

United KingdomFrance

ItalySpain

CanadaBrazil

Korea, Rep.India

MexicoRussian Fed.

Australia

0 1 2 3 4 5 6 7 8 9 10 12

$12.4$4.5

$2.8$2.2$2.2$2.1

$1.7$1.1$1.1

$.79$.79$.78$.77$.76$.70

GDP in Trillions of Dollars

GLOBAL PERSPECTIVE


Two Approaches to GDPTwo Approaches to GDPExpenditure

ApproachIncome

Approach

GDP

= =

+Consumption by

Households

Investment byBusinesses

GovernmentPurchases

ExpendituresBy Foreigners

+

+

+++

Wages

Rents

Interest

Profits

StatisticalAdjustments

+


IV.IV. Other National Accounts (see Table 6.4)Other National Accounts (see Table 6.4)

1.1. Net domestic productNet domestic product (NDP) is equal to GDP minus (NDP) is equal to GDP minus depreciation allowance (consumption of fixed capital).depreciation allowance (consumption of fixed capital).

2.2. National incomeNational income (NI) is income earned by American‑owned (NI) is income earned by American‑owned resources here or abroad. Adjust NDP by adding net foreign resources here or abroad. Adjust NDP by adding net foreign factor income. (Note: This may be a negative number if factor income. (Note: This may be a negative number if foreigners earned more in Kuwait than Kuwaiti resources foreigners earned more in Kuwait than Kuwaiti resources earned abroad.)earned abroad.)

3.3. Personal incomePersonal income (PI) is income received by households. To (PI) is income received by households. To calculate PI, take NI minus tcalculate PI, take NI minus taxes on production and axes on production and imports, minusimports, minus payroll taxes (social security contributions), payroll taxes (social security contributions), minus corporate profits taxes, minus undistributed corporate minus corporate profits taxes, minus undistributed corporate profits, and add transfer payments.profits, and add transfer payments.

4.4. Disposable incomeDisposable income (DI) is personal income less personal taxes. (DI) is personal income less personal taxes.


The Income ApproachThe Income Approach• From National Income to GDP: add the following items to NI:From National Income to GDP: add the following items to NI:

– Net Foreign Factor IncomeNet Foreign Factor Income– Statistical DiscrepancyStatistical Discrepancy– Consumption of Fixed CapitalConsumption of Fixed Capital

• Other National AccountsOther National Accounts– Net Domestic Product (NDP) Net Domestic Product (NDP)

• Subtract consumption of fixed capital from GDP Subtract consumption of fixed capital from GDP – National Income (NI). Subtract the following from NDP:National Income (NI). Subtract the following from NDP:

• Statistical discrepancy Statistical discrepancy • Net foreign factor incomeNet foreign factor income

– Personal Income (PI) subtract the following 4 items and add the 5Personal Income (PI) subtract the following 4 items and add the 5 thth itemitem

• Taxes on Production and ImportsTaxes on Production and Imports• Social Security ContributionsSocial Security Contributions• Corporate Income TaxesCorporate Income Taxes• Undistributed Corporate ProfitsUndistributed Corporate Profits• Transfer PaymentsTransfer Payments

– Disposable Income (DI) Disposable Income (DI) • subtract personal taxsubtract personal tax

– Note that Note that DI = C (consumption) + S (saving)DI = C (consumption) + S (saving) W 6.1


The Income ApproachThe Income Approach

Gross Domestic Product (Gross Domestic Product (GDPGDP)) Consumption of Fixed CapitalConsumption of Fixed CapitalNet Domestic Profit (Net Domestic Profit (NDPNDP)) - Statistical Discrepancy- Statistical Discrepancy - Net Foreign Factor Income - Net Foreign Factor Income (-(-34))(-(-34))

National Income (National Income (NINI)) 1. Taxes on Production and Imports1. Taxes on Production and Imports 2. Social Security Contributions2. Social Security Contributions 3. Corporate Income Taxes3. Corporate Income Taxes 4. Undistributed Corporate Profits4. Undistributed Corporate Profits 5. Transfer Payments5. Transfer PaymentsPersonal Income (Personal Income (PIPI)) Personal TaxesPersonal TaxesDisposable Income (Disposable Income (DIDI))

$ 12,487-1,574

$ 10,913-4334

$ 10,904-917-871-378-460

+1,970$ 10,248

-1,210$ 9,038

Income Relationships – United States, 2005


V.V. Circular Flow Revisited (see Figure 6.3)Circular Flow Revisited (see Figure 6.3)

A.A. Compare to the simpler model presented in earlier chapters. Compare to the simpler model presented in earlier chapters. Now both government and foreign trade sectors are added.Now both government and foreign trade sectors are added.

B.B. Note that the inside covers of the text contain a useful Note that the inside covers of the text contain a useful historical summary of national income accounts and related historical summary of national income accounts and related statistics.statistics.


Circular Flow RevisitedCircular Flow Revisited


Nominal versus Real GDPNominal versus Real GDP • Nominal GDP is the market value of all final goods and Nominal GDP is the market value of all final goods and

services produced in a year. services produced in a year. This creates problems This creates problems when we compare GDP over time.when we compare GDP over time.

• If GDP increases, this may be due to rises in quantities If GDP increases, this may be due to rises in quantities or in prices or both. But it is only the or in prices or both. But it is only the quantity of goodsquantity of goods we produce that affects our standards of living we produce that affects our standards of living notnot the the priceprice..

• To measure changes in the quantity of output, we need To measure changes in the quantity of output, we need a yardstick that stays the same size.a yardstick that stays the same size.

• To make comparisons of real output, a K.D. must keep To make comparisons of real output, a K.D. must keep the same purchasing power over time.the same purchasing power over time.


• Unadjusted (nominal) GDP: is based on current year Unadjusted (nominal) GDP: is based on current year pricesprices

• Adjusted (nominal) GDP: is based on base year Adjusted (nominal) GDP: is based on base year pricesprices

• To overcome the problem we To overcome the problem we deflatedeflate GDP when GDP when prices rise, orprices rise, or inflate inflate GDP when prices fall. Adjusted GDP when prices fall. Adjusted (real) GDP is deflated or inflated to reflect changes in (real) GDP is deflated or inflated to reflect changes in prices. prices.

Adjustment process in one product economy.Adjustment process in one product economy.Valid comparisons cannot be made with nominal Valid comparisons cannot be made with nominal GDP alone, since both prices and quantities are GDP alone, since both prices and quantities are subject to change. Some methods to separate the subject to change. Some methods to separate the two effects must be devised.two effects must be devised.


NOMINAL GDP vs. REAL GDP: GDPNOMINAL GDP vs. REAL GDP: GDP Output of PizzaOutput of Pizza

12345

578

1011

$ 1020253028

100200250

--

$ 50140200

--

$ 507080

--

(2)Price of

PizzaPer Unit

(1)Units ofOutput

Of PizzaYear

(3)Price Index

Year 1 =100

(4)Unadjusted,or Nominal,

GDP,(1)x(2)

(5)Adjusted,Or Real,

GDP

Note: Note:

The market basket is composed of The market basket is composed of pizzas pizzas onlyonly

Year 1 is the base yearYear 1 is the base year

Real GDP can be calculated by multiplying units of output by base year pricesReal GDP can be calculated by multiplying units of output by base year prices

=(20/10)*100 =(140/20)*100Or =Q*base year price

Base year


• Adjustment Process:Adjustment Process:• First Method: GDP Price Index: First Method: GDP Price Index: 1.1. first determine a price index, first determine a price index, 2.2. then adjust the nominal GDP figures by dividing by then adjust the nominal GDP figures by dividing by

this price indexthis price index

• Price index = (price of market basket in a specific Price index = (price of market basket in a specific year/ price of the same basket in base year) x 100.year/ price of the same basket in base year) x 100.

• Real GDP = (Nominal GDP/Price index) x 100Real GDP = (Nominal GDP/Price index) x 100

Price Index:Price Index: is a measure of the price of a specified collection is a measure of the price of a specified collection of goods and services called a of goods and services called a “market basket”“market basket” in a given year in a given year (e.g. current year) (e.g. current year) compared to the price of an compared to the price of an identicalidentical collection of goods and services in a reference collection of goods and services in a reference (base)(base) year. year.


Adjustment Process: Adjustment Process: • An alternative methodAn alternative method

• Multiply current quantities of goods and services by Multiply current quantities of goods and services by prices of the prices of the base yearbase year to calculate to calculate real GDP real GDP

• Multiply current quantities of goods and services by Multiply current quantities of goods and services by current yearcurrent year prices to calculate prices to calculate nominal GDPnominal GDP

• Calculate the price index Calculate the price index (Multiply by 100 to put it in (Multiply by 100 to put it in standard index form)standard index form) by:by:

• Price index = (nominal GDP/real GDP) x 100Price index = (nominal GDP/real GDP) x 100


VII. Shortcomings of GDP

• GDP doesn’t measure some very useful output GDP doesn’t measure some very useful output because it is because it is unpaidunpaid (homemakers’ services, (homemakers’ services, parental child care, volunteer efforts, home parental child care, volunteer efforts, home improvement projects), improvement projects), these are non-market these are non-market transactionstransactions..

• GDP doesn’t measure improved living conditions GDP doesn’t measure improved living conditions as a result of more leisure.as a result of more leisure.

• GDP does not measure improvements in product GDP does not measure improvements in product quality or make allowances for increased leisure quality or make allowances for increased leisure time.time.

• The Underground EconomyThe Underground Economy– Illegal activities are not counted in GDP (estimated to be Illegal activities are not counted in GDP (estimated to be

around 8% of U.S. GDP).around 8% of U.S. GDP).– Legal economic activity may also be part of the Legal economic activity may also be part of the

“underground,” usually in an effort to avoid taxation.“underground,” usually in an effort to avoid taxation.


• GDP and the environment.GDP and the environment.1.1. The harmful effects of pollution are The harmful effects of pollution are not deductednot deducted from from

GDP (oil spills, increased incidence of cancer, destruction GDP (oil spills, increased incidence of cancer, destruction of habitat for wildlife, the loss of a clear unobstructed of habitat for wildlife, the loss of a clear unobstructed view).view).

2.2. GDP GDP does includedoes include payments made for cleaning up the oil payments made for cleaning up the oil spills, and the cost of health care for the cancer victim.spills, and the cost of health care for the cancer victim.

• GDP makes no value adjustments for changes in the GDP makes no value adjustments for changes in the composition of outputcomposition of output or the or the distribution of incomedistribution of income..– Nominal GDP simply adds the dollar value of what is Nominal GDP simply adds the dollar value of what is

produced; it makes no difference if the product is a semi-produced; it makes no difference if the product is a semi-automatic automatic riflerifle or a jar of or a jar of baby foodbaby food..

– Per capita GDP may give some hint as to the relative Per capita GDP may give some hint as to the relative standard of living in the economy; but GDP figures do not standard of living in the economy; but GDP figures do not provide information about provide information about how the income is distributedhow the income is distributed..

• Noneconomic Sources of Well-Being like courtesy, Noneconomic Sources of Well-Being like courtesy, crime reduction, etc., are not covered in GDP.crime reduction, etc., are not covered in GDP.


Shortcomings of GDP

Source: Journal of Economic Literature

Underground Economy as a Percentage of GDP - Select Nations

GreeceItaly

SpainPortugalBelgiumSweden

GermanyFrance

HollandUnited Kingdom

JapanUnited States

Switzerland

0 5 10 15 20 25 30 Percentage of GDP

GLOBAL PERSPECTIVE


VIII. LAST WORD: Magical Mystery Tour

• GDP is compiled by the Bureau of Economic Analysis GDP is compiled by the Bureau of Economic Analysis (BEA) in U.S. Commerce Department. Where does it get (BEA) in U.S. Commerce Department. Where does it get its data? Explanation follows.its data? Explanation follows.

• Consumption data comes from:Consumption data comes from:• Census Bureau’s “Retain Trade Survey” from sample of Census Bureau’s “Retain Trade Survey” from sample of

22,000 firms.22,000 firms.• Census Bureau’s “Survey of Manufacturers,” which gets Census Bureau’s “Survey of Manufacturers,” which gets

information on consumer goods shipments from 50,000 information on consumer goods shipments from 50,000 firms.firms.

• Census Bureau’s “Service Survey” of 30,000 service Census Bureau’s “Service Survey” of 30,000 service businesses.businesses.

• Industry trade sources like auto and aircraft sales.Industry trade sources like auto and aircraft sales.• Investment data comes from:Investment data comes from:• All the consumption sources listed above.All the consumption sources listed above.


• Census construction surveys.Census construction surveys.• Government purchase data is obtained from:Government purchase data is obtained from:• U.S. Office of Personnel Management, which collects data on U.S. Office of Personnel Management, which collects data on

wages and benefits.wages and benefits.• Census construction surveys of public projects.Census construction surveys of public projects.• Census Bureau’s “Survey of Government Finance.”Census Bureau’s “Survey of Government Finance.”• Net export information comes from:Net export information comes from:• U.S. Customs Service data on exports and imports.U.S. Customs Service data on exports and imports.• BEA surveys on service exports and imports.BEA surveys on service exports and imports.

copyright 2008 the mcgraw-hill companies 6-1 6 measuring domestic output and national income

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