[Joseph_E._Stiglitz,_Carl_E._Walsh]_Economics(Bookos.org) (1)

MEASURING GDP: THE VALUE OF OUTPUT
The general accounting system we use to measure GDP is called the National Income
and Product Accounts (NIPA) and is produced by the Bureau of Economic Analysis.
In the national income accounts, there are three approaches to measuring GDP
(whether real or nominal), each of which yields the same result. Two concentrate
on output data. The third—relying on the fact that the value of output becomes
income to someone—uses income figures to obtain a measure of output.
The Final Goods Approach On the face of it, measuring GDP is a straightforward
task; we gather together the dollar value of all goods and services sold in a
country and then add them up. Unfortunately, matters are not this simple, because
it is first necessary to distinguish between final goods and intermediate goods. Final
goods—such as automobiles, books, bread, and shoes—are sold for final use by consumers,
firms, the government, or foreigners. Intermediate goods are used to
produce outputs—like coal used to make steel or silica used to make silicon computer
chips. A good such as a blank CD can be either a final good or an intermediate
good, depending on how it is used. The final goods approach used to measure
GDP adds up the total dollar value of goods and services produced, categorized by
their ultimate users.
The reason why it is so important to distinguish between final and intermediate
goods is that the value of the final goods includes the value of the intermediate goods
that went into making the final goods. When Ford sells a truck for $25,000, that
figure may include $250 worth of Uniroyal tires. It would be double counting to list
both the value of the truck and the value of the tires on the truck in GDP. Likewise
for steel, plastic, and other components that go into making the truck. In fact, cases
in which some intermediate goods are used to produce other intermediate goods
could lead to even triple or quadruple counting.
One way of calculating the value of the final goods produced in the economy is
to consider where those goods go. There are four possibilities. Some of the final
goods are consumed by individuals—we call this aggregate consumption (and we
include all consumption goods, regardless of where they are produced—we will see
later how we correct for goods produced in other countries). Some are used by firms
to build buildings and make machines—this is called aggregate investment (again,
we include all investment goods that firms purchase, regardless of where they are
Internet Connection
THE BUREAU OF ECONOMIC ANALYSIS
The home page of the Bureau of Economic Analysis can be
found at www.bea.gov. You can find the latest GDP data at
this site.
MEASURING OUTPUT AND GROWTH ∂ 489