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59-523: Arriving at a figure for the total production of goods and services in a large region like a country entails a large amount of data-collection and calculation. Although some attempts were made to estimate national incomes as long ago as the 17th century, the systematic keeping of national accounts , of which these figures are a part, only began in the 1930s, in the United States and some European countries . The impetus for that major statistical effort

118-559: A change in the makeup of national accounts or adjustments in the formulation of public policy . The original motivation for the development of national accounts and the systematic measurement of employment was the need for accurate measures of aggregate economic activity. This was made more pressing by the Great Depression and as a basis for Keynesian macroeconomic stabilisation policy and wartime economic planning. The first efforts to develop such measures were undertaken in

177-451: A country or across to estimate different sources of growth, whether from growth of factor inputs or technological change . The accounts are derived from a wide variety of statistical source data including surveys , administrative and census data, and regulatory data, which are integrated and harmonized in the conceptual framework. They are usually compiled by national statistical offices and/or central banks in each country, though this

236-437: A good or service is its market value – the price it fetches when bought or sold. The actual usefulness of a product (its use-value) is not measured – assuming the use-value to be any different from its market value. Three strategies have been used to obtain the market values of all the goods and services produced: the product (or output) method, the expenditure method, and the income method. The product method looks at

295-453: A nation. These include detailed underlying measures that rely on double-entry accounting . By design, such accounting makes the totals on both sides of an account equal even though they each measure different characteristics, for example production and the income from it. As a method , the subject is termed national accounting or, more generally, social accounting . Stated otherwise, national accounts as systems may be distinguished from

354-402: A source of information for economic analysis, for example in the input-output tables which show how industries interact with each other in the production process. National accounts can be presented in nominal or real amounts , with real amounts adjusted to remove the effects of price changes over time. A corresponding price index can also be derived from national output. Rates of change of

413-605: Is a component of aggregate demand . Consumption is defined in part by comparison to production . In the tradition of the Columbia School of Household Economics , also known as the New Home Economics , commercial consumption has to be analyzed in the context of household production. The opportunity cost of time affects the cost of home-produced substitutes and therefore demand for commercial goods and services. The elasticity of demand for consumption goods

472-588: Is also a function of who performs chores in households and how their spouses compensate them for opportunity costs of home production. Different schools of economists define production and consumption differently. According to mainstream economists , only the final purchase of goods and services by individuals constitutes consumption, while other types of expenditure — in particular, fixed investment , intermediate consumption , and government spending — are placed in separate categories (See consumer choice ). Other economists define consumption much more broadly, as

531-503: Is also gradually increasing. In Iran, for example, electricity consumption has increased along with economic growth since 1970. But as countries continue to develop this effect is decreasing as they optimize their production, by getting more energy-efficient equipment. Or by transferring parts of their production to foreign nations where the cost of electrical energy is smaller. [REDACTED] The main factors affecting consumption studied by economists include: Income: Economists consider

590-707: Is based on two assumptions: The model of intertemporal consumption was first thought of by John Rae in 1830s and it was later expanded by Irving Fisher in 1930s in the book Theory of interest . This model describes how consumption is distributed over periods of life. In the basic model with 2 periods for example young and old age. S 1 = Y 1 − C 1 {\displaystyle S_{1}=Y_{1}-C_{1}} And then C 2 = Y 2 + S 1 × ( 1 + r ) {\displaystyle C_{2}=Y_{2}+S_{1}\times (1+r)} Where C {\displaystyle C}

649-417: Is basically an output accounting method. It focuses on finding the total output of a nation by finding the total amount of money spent. This is acceptable to economists, because, like income, the total value of all goods is equal to the total amount of money spent on goods. The basic formula for domestic output takes all the different areas in which money is spent within the region, and then combines them to find

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708-399: Is equal to income minus savings. Consumption can be calculated via this formula: C = C 0 + c ∗ Y d {\displaystyle C=C_{0}+c*Y_{d}} Where C 0 {\displaystyle C_{0}} stands for autonomous consumption which is minimal consumption of household that is achieved always, by either reducing

767-420: Is not always the case, and may be released on both an annual and (less detailed) quarterly frequency. Practical issues include inaccuracies from differences between economic and accounting methodologies, lack of controlled experiments on quality of data from diverse sources, and measurement of intangibles and services of the banking and financial sectors. Two developments relevant to the national accounts since

826-473: Is not included in calculating gross domestic product (GDP). An Australian study has shown the value of this uncounted work to be approximately 50% of GDP, making its exclusion rather significant. As GDP is tied closely to the national accounts system, this may lead to a distorted view of national accounts. Because national accounts are widely used by governmental policy-makers in implementing controllable economic agendas, some analysts have advocated for either

885-460: Is often written as X N or less commonly as NX , both stand for "net exports" The names of the measures consist of one of the words "Gross" or "Net", followed by one of the words "National" or "Domestic", followed by one of the words "Product", "Income", or "Expenditure". All of these terms can be explained separately. All three counting methods should in theory give the same final figure. However, in practice, minor differences are obtained from

944-421: Is over a period) and stocks (measured at the end of a period), ensuring that the flows are reconciled with the stocks. As to flows, the national income and product accounts (in U.S. terminology) provide estimates for the money value of income and output per year or quarter, including GDP . As to stocks, the 'capital accounts' are a balance-sheet approach that has assets on one side (including values of land,

1003-443: Is positively correlated with economical growth. As electric energy is one of the most important inputs of the economy. Electric energy is needed to produce goods and to provide services to consumers. There is a statistically significant effect of electrical energy consumption and economic growth that is positive. Electricity consumption reflects economic growth. With the gradual rise of people's material level, electric energy consumption

1062-657: Is seen in contrast to investing , which is spending for acquisition of future income. Consumption is a major concept in economics and is also studied in many other social sciences . Different schools of economists define consumption differently. According to mainstream economists , only the final purchase of newly produced goods and services by individuals for immediate use constitutes consumption, while other types of expenditure — in particular, fixed investment , intermediate consumption , and government spending — are placed in separate categories (see consumer choice ). Other economists define consumption much more broadly, as

1121-438: Is the consumption in a given year. Where Y {\displaystyle Y} is the income received in a given year. Where S {\displaystyle S} are saving from a given year. Where r {\displaystyle r} is the interest rate. Indexes 1,2 stand for period 1 and period 2. This model can be expanded to represent each year of a lifetime. The permanent income hypothesis

1180-410: Is the method of valuing environmental assets , which are usually not counted in measuring national wealth, in part due to the difficulty of valuing them. The method has been proposed as an alternative to an implied zero valuation of environmental assets and as a way of measuring the sustainability of welfare levels in the presence of environmental degradation . Macro economic data not derived from

1239-464: Is the most important part of GDP. It usually ranges from 45% from GDP to 85% of GDP. In microeconomics , consumer choice is a theory that assumes that people are rational consumers and they decide on what combinations of goods to buy based on their utility function (which goods provide them with more use/happiness) and their budget constraint (which combinations of goods they can afford to buy). Consumers try to maximize utility while staying within

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1298-497: The Human Development Index (HDI), Index of Sustainable Economic Welfare (ISEW), Genuine Progress Indicator (GPI), gross national happiness (GNH), and sustainable national income (SNI) are used. National accounts Heterodox National accounts or national account systems ( NAS ) are the implementation of complete and consistent accounting techniques for measuring the economic activity of

1357-459: The capital stock, and financial assets) and liabilities and net worth on the other, measured as of the end of the accounting period. National accounts also include measures of the changes in assets, liabilities, and net worth per accounting period. These may refer to flow of funds accounts or, again, capital accounts . There are a number of aggregate measures in the national accounts, notably including gross domestic product or GDP , perhaps

1416-430: The economic data associated with those systems. While sharing many common principles with business accounting, national accounts are based on economic concepts. One conceptual construct for representing flows of all economic transactions that take place in an economy is a social accounting matrix with accounts in each respective row-column entry. National accounting has developed in tandem with macroeconomics from

1475-560: The 1930s with its relation of aggregate demand to total output through interaction of such broad expenditure categories as consumption and investment. Economic data from national accounts are also used for empirical analysis of economic growth and development . National accounts broadly present output, expenditure, and income activities of the economic actors (households, corporations, government) in an economy, including their relations with other countries' economies, and their wealth (net worth). They present both flows (measured but it

1534-443: The 1980s include the following. Generational accounting is a method for measuring redistribution of lifetime tax burdens across generations from social insurance , including social security and social health insurance . It has been proposed as a better guide to the sustainability of a fiscal policy than budget deficits , which reflect only taxes minus spending in the current year. Environmental or green national accounting

1593-534: The Fisherian intertemporal choice framework as the real structure of the consumption function. Unlike the passive strategy of structure embodied in inductive structural realism, economists define structure in terms of its invariance under intervention. The Keynesian consumption function is also known as the absolute income hypothesis , as it only bases consumption on current income and ignores potential future income (or lack of). Criticism of this assumption led to

1652-645: The United Nations published A System of National Accounts and Supporting Tables in 1952. International standards for national accounting are defined by the United Nations System of National Accounts , with the most recent version released for 2008. Even before that in early 1920s there were national economic accounts tables. One of such systems was called Balance of national economy and was used in USSR and other socialistic countries to measure

1711-910: The aggregate of all economic activity that does not entail the design, production and marketing of goods and services (e.g., the selection, adoption, use, disposal and recycling of goods and services). Consumption can also be measured in a variety of different ways such as energy in energy economics metrics. GDP (Gross domestic product) is defined via this formula: Y = C + G + I + N X {\displaystyle Y=C+G+I+NX} Where C {\displaystyle C} stands for consumption. Where G {\displaystyle G} stands for total government spending. (including salaries) Where I {\displaystyle I} stands for Investments. Where N X {\displaystyle NX} stands for net exports. Net exports are exports minus imports. In most countries consumption

1770-427: The aggregate of all economic activity that does not entail the design, production and marketing of goods and services (e.g., the selection, adoption, use, disposal and recycling of goods and services). Economists are particularly interested in the relationship between consumption and income, as modelled with the consumption function . A similar realist structural view can be found in consumption theory, which views

1829-399: The constraint of the standard economic model. These include bounded rationality , bounded willpower, and bounded selfishness. Bounded rationality was first proposed by Herbert Simon. This means that people sometimes respond rationally to their own cognitive limits, which aimed to minimize the sum of the costs of decision making and the costs of error. In addition, bounded willpower refers to

Measures of national income and output - Misplaced Pages Continue

1888-517: The consumer's credit and his credit transactions can allow the consumer to use his future income at present. As a result, it can lead to more consumption expenditure compared to the case that the only purchasing power is current income. Interest rate: Fluctuations in interest rates can affect household consumption decisions. An increase in interest rates increases people's savings and, as a result, reduces their consumption expenditures. Household size: Households' absolute consumption costs increase as

1947-523: The consumer. If the consumer's expectations about future prices change, it can change his consumption decisions in the present period. Consumer assets and wealth: These refer to assets in the form of cash, bank deposits, securities, as well as physical assets such as stocks of durable goods or real estate such as houses, land, etc. These factors can affect consumption; if the mentioned assets are sufficiently liquid, they will remain in reserve and can be used in emergencies. Consumer credits: The increase in

2006-435: The development of Milton Friedman 's permanent income hypothesis and Franco Modigliani 's life cycle hypothesis . More recent theoretical approaches are based on behavioural economics and suggest that a number of behavioural principles can be taken as microeconomic foundations for a behaviourally-based aggregate consumption function. Behavioural economics also adopts and explains several human behavioural traits within

2065-478: The economy is the sum of the values-added by every industry. The expenditure method is based on the idea that all products are bought by somebody or some organisation. Therefore, we sum up the total amount of money people and organisations spend in buying things. This amount must equal the value of everything produced. Usually, expenditures by private individuals, expenditures by businesses, and expenditures by government are calculated separately and then summed to give

2124-462: The economy on an industry-by-industry basis. The total output of the economy is the sum of the outputs of every industry. However, since an output of one industry may be used by another industry and become part of the output of that second industry, to avoid counting the item twice we use not the value output by each industry, but the value-added; that is, the difference between the value of what it puts out and what it takes in. The total value produced by

2183-560: The efficiency of socialistic production. In Europe, the worldwide System of National Accounts has been adapted in the European System of Accounts (ESA), which is applied by members of the European Union and many other European countries. Research on the subject continues from its beginnings through today. Consumption (economics) Consumption is the act of using resources to satisfy current needs and wants. It

2242-413: The example of meat production, the value of the good from the farm may be $ 10, then $ 30 from the butchers, and then $ 60 from the supermarket. The value that should be included in final national output should be $ 60, not the sum of all those numbers, $ 100. The values added at each stage of production over the previous stage are respectively $ 10, $ 20, and $ 30. Their sum gives an alternative way of calculating

2301-470: The fact that people often take actions that they know are in conflict with their long-term interests. For example, most smokers would rather not smoke, and many smokers willing to pay for a drug or a program to help them quit. Finally, bounded self-interest refers to an essential fact about the utility function of a large part of people: under certain circumstances, they care about others or act as if they care about others, even strangers. Aggregate consumption

2360-798: The gap between groups in a society, the more homogeneous consumption pattern within the society. Consumer taste: One of the important factors in shaping the consumption pattern is consumer taste. This factor, to some extent, can affect other factors such as income and price levels. On the other hand, society's culture has a significant impact on shaping the tastes of consumers. Area: Consumption patterns are different in different geographical regions. For example, this pattern differs from urban and rural areas, crowded and sparsely populated areas, economically active and inactive areas, etc. Consumption theories began with John Maynard Keynes in 1936 and were developed by economists such as Friedman, Dusenbery, and Modigliani. The relationship between consumption and income

2419-457: The given good. Those factors can be the popularity of a given good or its position in a supermarket. In macroeconomics in the theory of national accounts consumption is not only the amount of money that is spent by households on goods and services from companies, but also the expenditures of government that are meant to provide things for citizens they would have to buy themselves otherwise. This means things like healthcare. Where consumption

Measures of national income and output - Misplaced Pages Continue

2478-407: The goods (Income), particularly if inputs are purchased on credit, and also because wages are collected often after a period of production. Gross domestic product (GDP) is defined as "the value of all final goods and services produced in a country in 1 year". Gross national product (GNP) is defined as "the market value of all goods and services produced in one year by labour and property supplied by

2537-408: The income level to be the most crucial factor affecting consumption. Therefore, the offered consumption functions often emphasize this variable. Keynes considers absolute income, Duesenberry considers relative income, and Friedman considers permanent income as factors that determine one's consumption. Consumer expectations: Changes in the prices would change the real income and purchasing power of

2596-575: The late 1920s and 1930s, notably by Colin Clark and Simon Kuznets . Kuznets building on a project that was underway https://www.nber.org/system/files/chapters/c4231/c4231.pdf , Lillian Epstein had been involved in earlier studies. Richard Stone of the U.K. led later contributions during World War II and thereafter. The first formal national accounts were published by the United States in 1947. Many European countries followed shortly thereafter, and

2655-411: The limits of their budget constrain or to minimize cost while getting the target level of utility. A special case of this is the consumption-leisure model where a consumer chooses between a combination of leisure and working time, which is represented by income. However, behavioural economics shows that consumers do not behave rationally and they are influenced by factors other than their utility from

2714-437: The main national accounts include the following accounts for the economy as a whole and its main economic actors. The accounts may be measured as gross or net of consumption of fixed capital (a concept in national accounts similar to depreciation in business accounts). Notably absent from these components, however, is unpaid work , because its value is not included in any of the aforementioned categories of accounts, just as it

2773-420: The most widely cited measure of aggregate economic activity. Ways of breaking down GDP include as types of income (wages, profits, etc.) or expenditure (consumption, investment/saving, etc.). Measures of these are examples of macro - economic data . Such aggregate measures and their change over time are generally of strongest interest to economic policymakers, although the detailed national accounts contain

2832-573: The national accounts are also of wide interest, for example some cost-of-living indexes , the unemployment rate , and the labor force participation rate . In some cases, a national-accounts counterpart of these may be estimated, such as a price index computed from the personal consumption expenditures and the GDP gap (the difference between observed GDP and potential GDP ). The presentation of national accounts data may vary by country (commonly, aggregate measures are given greatest prominence), however

2891-446: The number of family members increases. Although for some goods, as the number of households increases, the consumption of such goods would increase relatively less than the number of households. This happens due to the phenomena of the economy of scale. Social groups: Household consumption varies in different social groups. For example, the consumption pattern of employers is different from the consumption pattern of workers. The smaller

2950-411: The price level and output may also be of interest. An inflation rate (growth rate of the price level) may be calculated for national output or its expenditure components. Economic growth rates (most commonly the growth rate of GDP) are generally measured in real (constant-price) terms. One use of economic-growth data from the national accounts is in growth accounting across longer periods of time for

3009-537: The residents of a country." As an example, the table below shows some GDP and GNP, and NNI data for the United States: GDP per capita (per person) is often used as a measure of a person's welfare . Countries with higher GDP may be more likely to also score high on other measures of welfare, such as life expectancy . However, there are serious limitations to the usefulness of GDP as a measure of welfare: Because of this, other measures of welfare such as

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3068-439: The savings of household or by borrowing money. c {\displaystyle c} is marginal propensity to consume where c ∈ [ 0 , 1 ] {\displaystyle c\in [0,1]} and it reveals how much of household income is spent on consumption. Y d {\displaystyle Y_{d}} is the disposable income of the household. Consumption of electric energy

3127-537: The three methods for several reasons, including changes in inventory levels and errors in the statistics. One problem for instance is that goods in inventory have been produced (therefore included in Product), but not yet sold (therefore not yet included in Expenditure). Similar timing issues can also cause a slight discrepancy between the value of goods produced (Product) and the payments to the factors that produced

3186-466: The total expenditure. Also, a correction term must be introduced to account for imports and exports outside the boundary. The income method works by summing the incomes of all producers within the boundary. Since what they are paid is just the market value of their product, their total income must be the total value of the product. Wages, proprietor's incomes, and corporate profits are the major subdivisions of income. The output approach focuses on finding

3245-476: The total output of a nation by directly finding the total value of all goods and services a nation produces. Because of the complication of the multiple stages in the production of a good or service, only the final value of a good or service is included in the total output. This avoids an issue often called ' double counting ', wherein the total value of a good is included several times in national output, by counting it repeatedly in several stages of production. In

3304-616: The total output. G D P = C + G + I + ( X − M ) {\displaystyle \mathrm {GDP} =C+G+I+\left(\mathrm {X} -M\right)} where: C = Consumption (economics) (Household consumption expenditures / Personal consumption expenditures) I = Investment (macroeconomics) / Gross private domestic investment G = Government spending (Government consumption / Gross investment expenditures) X = Exports (Gross exports of goods and services) M = Imports (Gross imports of goods and services) Note: ( X - M )

3363-425: The value of final output. Key formulae are: GDP at market price = value of output in the economy - intermediate consumption NNP at factor cost = GDP at market price - net indirect taxes - depreciation + net factor income from abroad NDP at factor cost = compensation of employees + net interest + rental & royalty income + profit of incorporated and unincorporated NDP at factor cost The expenditure approach

3422-567: Was a crucial concept in macroeconomic analysis for a long time. In his 1936 General Theory, Keynes introduced the consumption function. He believed that various factors influence consumption decisions; But in the short run, the most important factor is real income. According to the Absolute Income Hypothesis, consumer spending on consumption goods and services is a linear function of his current disposable income. James Duesenberry proposed this model in 1949. This theory

3481-444: Was the Great Depression and the rise of Keynesian economics , which prescribed a greater role for the government in managing an economy, and made it necessary for governments to obtain accurate information so that their interventions into the economy could proceed as well-informed as possible. In order to count a good or service, it is necessary to assign value to it. The value that the measures of national income and output assign to

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