National Income Accounting Basics

Goods used by businesses to produce other goods or services. These goods are not consumed directly but are used repeatedly in the production process. Examples include machines, equipment, and buildings.

Goods that are used as inputs in the production process of other goods. These goods are not final goods and are consumed during the production process.

Goods that are bought by households for consumption. These goods are either used up immediately or over a short period of time.

Goods that are bought by households for consumption. These goods have a long lifespan and are used repeatedly over a period of time.

The total value of all final goods and services produced in an economy over a given period of time.

A common measuring rod used to compare different products and services in a country's economy.

The wear and tear that occurs on capital goods over time. This reduction in value is due to the use and age of the goods.

The process of maintaining and renewing capital goods over time. This ensures that the stock of capital in an economy is preserved and replaced as needed.

The relationship between the production of capital goods and consumer goods within an economy. Increasing production of capital goods leads to a decrease in consumer goods production in the short term, but ultimately allows for increased production of consumer goods in the long term.

The assumption that the value of a capital good decreases at a constant rate based on its original price.

The continuous flow of economic activity, where production, consumption, and investment are linked in a cycle.

The ability of an economy to grow and produce more goods and services over time. This is often driven by increased investment in capital goods.

The demand for goods and services in a market, backed by sufficient purchasing power. Without sufficient purchasing power, demand is not recognized by the market, and production is reduced.

The ability of individuals or businesses to purchase goods and services.

The recognition of a need for a product or service by the market, based on effective demand. The market only responds to needs that are backed by purchasing power.

The total value of all final goods and services produced by a country's residents within a year, measured at market prices.

The income earned by factors of production (labor, capital, land, etc.) within a country's territory.

The measure of a country's income, adjusted for depreciation of capital goods.

The total income earned by factors of production belonging to a country's residents.

The value of a country's total output, taking into account the wear and tear of capital goods.

The amount a country can consume in a given time period.

The value of a country's production minus depreciation.

The total value of all final goods and services produced within a country's borders in a year.

Goods that are used directly by consumers to satisfy their wants and needs. They are bought for their final use and are not used in the production of other goods.

The economic nature of a good determines its classification. A good is considered a final good when it is bought for its final use and is not used in the production of anything else.

Economic value addition occurs when the value of a good or service increases through processing and transformation, resulting in an increase in economic activity.

Cooking at home is not considered an economic activity because the food produced is not meant for sale in the market. The food is consumed within the household, with no economic exchange involved.

The distinction between final goods and intermediate goods is not based on the nature of the good itself, but on the ultimate use of the good in the economic process.

Durable goods, like tools and machines, are used in the production process and are not directly consumed. They are considered final goods, but not for final consumption.

The product method calculates the total value of goods and services produced in an economy by summing the value added at each stage of production.

Double counting occurs when the value of an intermediate good is counted more than once in the calculation of GDP. This can happen when the value of a good is included in the production of both the intermediate good and the final good.

Value added represents the increase in the value of a good or service at each stage of production. It is calculated by subtracting the cost of intermediate inputs from the value of output.

Final Goods are goods that are sold to consumers for final use. For example, bread is a final good that is sold to consumers for consumption.

The product method emphasizes the value added at each stage of production. It accounts for the contributions of all producers in the economy.

The product method can be challenging to implement accurately because it requires data on the value added at each production stage, which can be difficult to collect.

Despite the challenges, the product method is considered a reliable way to measure the aggregate value of goods and services produced in an economy because it avoids double counting.

A method of calculating GDP by adding up the value added at each stage of production.

The value of goods and services produced by a firm minus the cost of intermediate goods used in the production process.

A method of calculating GDP by adding up all final expenditures on goods and services.

A method of calculating GDP by adding up all factor incomes (wages, profits, interest, and rent).

The value of a good or service at its final stage of production, before any indirect taxes are added and subsidies are deducted.

The actual price that consumers pay for a good or service, including indirect taxes and excluding subsidies.

The measurement of national income that reflects the value of goods and services produced at their factor costs, without including indirect taxes and subsidies.