The National Income and Product Accounts (NIPA) are a vast accounting scheme for aggregate economic
activity. In the United States they are prepared by the Bureau of Economic Analysis (BEA) of the
Department of Commerce. We will discuss the basic elements of the income and product accounts that
are used to measure the overall, or aggregate, level of economic activity.
Economic activity gives rise to both output and income earned by the persons and machines involved in
the productive activity. The overall level of economic activity can be measured by adding up either the
value of output produced or the levels of income earned. The most common aggregate measure is the
product side calculation of Gross Domestic Product (GDP). On the income side of the accounts, the
measure of aggregate activity is National Income (NI). We will start with a conceptual definition of each
measure. We will then show how the measures relate to one another and derive some important
accounting relationships that utilize information from each.
On the product side, Gross Domestic Product (GDP) is defined as the market value of all final goods and
services produced in a given time period by labor and property located within the U.S. Prior to the 1991
revisions to the NIPA, GNP (Gross National Product) was the aggregate measure that was most
commonly used. GNP measures output produced by the labor and property of U.S. residents, regardless
of where the labor and property are located. In 1990, GNP was about 0.2% greater than GDP. The
aggregate emphasized was switched from GNP to GDP because (a) GDP is a more appropriate measure
for tracking changes in economic activity and (b) most other countries use a GDP concept.
The key words in our definition are product, final, and market value. By product, we mean the
consequences of a current act of production and we exclude the transfer of existing assets. By final
product we mean output absorbed by the ultimate users...