A Little History

Economists, lead by John Maynard Keynes, sought to understand the Great Depression by developing theories of the macroeconomics. However, macroeconomic data was needed to test these theories. In fact, some economists attribute the severity of the Great Depression in part to the lack of accurate macroeconomic data. While people knew the economy was in bad shape, no one really knew how bad it was--IN TOTAL. As such, they had no idea if or when correct action was needed.

Simon Kuznets, a future Noble Prize laureate, was largely responsible for developing the first set of National Income and Product Accounts released in 1934 when he was associated with the National Bureau of Economic Research. This system has been refined, enhanced, and improved over the decades. The U.S. system of National Income and Product Accounts has been the model for similar systems developed by other nations throughout the world.

The Big Five Measures

• Gross Domestic Product: The total market value of all final goods and services produced within the political boundaries of an economy during a given period of time, usually one year. This is the official measure of the total output produced by the economy.


• Net Domestic Product: The total market value of all final goods and services produced within the political boundaries of an economy during a given period of time, usually a year, after adjusting for the depreciation of capital.


• National Income: The total income earned by the citizens of the national economy as a result of their ownership the resources used in the production of final goods and services during a given period of time, usually one year. This is the official measure of the total income generated by the economy.


• Personal Income: The total income received by the members of the domestic household sector, which may or may not be earned from productive activities during a given period of time, usually one year.


• Disposable Income: The total income that can be used by the household sector for either consumption or saving during a given period of time, usually one year.

And a Host of Others

• The Four Aggregate Expenditures: Gross domestic product is divided among expenditures by the four macroeconomic sectors, including personal consumption expenditures (household sector), gross private domestic investment (business sector), government consumption expenditures and gross investment (government sector), and net exports of goods and services (foreign sector).


• Expenditure Components: These four aggregate expenditures are divided into different components. Household consumption expenditures are separated into durable goods, nondurable goods, and services. They are further subdivided into specific categories such as medical care, intercity airline transportation, shoes, legal services, and tobacco products. Business investment expenditures are separated into fixed investment and changes in inventories. Government purchases are separated into federal defense, federal non-defense, and state and local. Net exports are separated into exports and imports.


• Income Sources: National income is divided among the major sources that are more or less associated with the four factors of production. These sources are wages (labor), interest (capital), rent (land), corporate profit (entrepreneurship), and proprietors' income (all four combined).


• Industrial Production: Gross domestic product is also compiled for major industries, including agriculture, mining, construction, manufacturing, transportation, wholesale trade, retail trade, finance, and services. Data are further compiled for divisions of these major industries, such as lumber and wood products (manufacturing), railroad (transportation), banking (finance), and hotel and lodging (services).


• Assorted Adjustments: A key feature of the National Income and Product Accounts is the various items separating the five primary production and income measures. A few of the more notable ones are capital consumption adjustment, indirect business taxes, net foreign factor income, undistributed corporate profits, and personal taxes--all of which are important in their own right.


• Price Deflators: The adjustment of gross domestic product and other measures for inflation generates a series of price indexes, or price deflators. These are exceptionally useful for calculating inflation, especially inflation rates for specific components of production and income, such as the inflation rate of personal consumption expenditures on durable goods.