nipa - E202 - N IPA TRACKING THE PRODUCTION PROCESS...

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E202 - NIPA 1 TRACKING THE PRODUCTION PROCESS Production involves using factors of production to produce goods and services. The transactions which result (in the goods market) can be measured on either the purchase side or on the selling side. Sale side Income approach Purchase side Expenditure approach On both sides, there are three topics to discuss: 1. Conceptually, what are we measuring? 2. In practice, how do we actually calculate our measures? 3. What are the accounting relationships involved? MEASUREMENT OF INCOME, OUTPUT, AND PRICES Income: Domestic Income (Y) Conceptually, income is the earnings of factors of production and can be disaggregated into three broad categories: from labor, from capital, from property (raw materials). In practice, however, income is measured in five categories: From labor employee comp. proprietor s inc. From capital proprietor s inc. corporate profit net interest From property rental income These comprise total factor income or DOMESTIC INCOME (Y) .
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E202 - NIPA 2 COMMENTS: 1. Memory Aid: Y = W R i PP W ages R ent i nterest (not investment) P roprietor s Income P rofit 2. Category % of Y Employee compensation (Wages) 64% Rental Income 2% Net Interest 6% Proprietor s Income 9% Corporate Profits 11% Indirect taxes, business transfers, surplus of govt. ent. 9% OUTPUT: DOMESTIC PRODUCT (Q) Conceptually, Domestic P RODUCT is the total domestic output of goods and services which are: produced during some time period final goods and are: valued at current prices: NOMINAL DP or are: valued at constant (base year) prices: REAL DP
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E202 - NIPA 3 N ET VS G ROSS DP Gross Domestic Product (GDP) measures total output without adjustment for depreciation. Depreciation
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nipa - E202 - N IPA TRACKING THE PRODUCTION PROCESS...

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