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REAL GROSS DOMESTIC PRODUCT: The total market value, measured in constant prices, of all goods and services produced within the political boundaries of an economy during a given period of time, usually one year. The key is that real gross domestic product is measured in constant prices, the prices for a specific base year. Real gross domestic product, also termed constant gross domestic product, adjusts gross domestic product for inflation. You might want to compare real gross domestic product with the related term nominal gross domestic product.
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                           NET INTEREST: The official item in the National Income and Product Accounts maintained by the Bureau of Economics Analysis measuring interest earned by the household sector for supplying capital services. This is one of five official factor payments making up national income. The other four are compensation of employees, rental income of persons, corporate profits, and proprietors' income. Net interest is usually less than 10 percent of national income, typically in the 6 to 8 percent range. In principle, net interest is considered payment for the productive services of capital. At first glance, this might not seem to make a great deal of sense. After all, interest is the payment for borrowing funds, is it not? Closer inspection, however, indicates that this is more reasonable than it might first appear.The key consideration is the close, very close, connection between financial markets and capital investment. - First, financial markets and capital investment are two alternative and competing investment opportunities. If firms in the business sector have a little extra revenue on hand, that is retained earnings, they are likely to compare the return generated from capital investment with the return obtained through financial markets. The one with the higher return gets the investment. This competition between physical capital and financial capital investment tends to equalize the returns.
- Second, financial markets are a primary source of funding used by the business sector to invest in capital goods. The return on capital investment, that is the profitability of capital, influences the interest rate business firms are willing to pay for borrowing funds. If capital investment generates greater profit, then the business sector is willing to pay a higher interest rate on borrowed funds.
The end result is that interest payments on loans used to finance investment in capital goods is, at least indirectly, compensation for the use of physical capital. While the lenders do not own the physical capital directly, their loans make production of the capital goods possible.While net interest is consider a payment for the services of capital goods, it is not the only factor payment entry in National Income and Product Accounts to do so. Although rental income of persons intends to capture payment for the services of land, a portion also includes payment for the services of capital. The same can be said for corporate profits, which does not distinguish between payment for entrepreneurship and capital ownership. Likewise, proprietors' income includes factor payments for the services of capital owned by proprietors, in addition to services provided by proprietors' labor, land, and entrepreneurship.
Recommended Citation:NET INTEREST, AmosWEB Encyclonomic WEB*pedia, http://www.AmosWEB.com, AmosWEB LLC, 2000-2025. [Accessed: November 11, 2025].
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Okun's Law posits that the unemployment rate increases by 1% for every 2% gap between real GDP and full-employment real GDP.
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"Love looks through a telescope; envy, through a microscope. " -- Josh Billings, humorist
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AASB
American Assocation of Small Business
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