Q: How do we measure GDP in Reality?

A: There are three equivalent approaches

1. Value-Added Approach adds

up production across producers
2. Income account adds up
claims against value added across types of claimant
3. Expenditure Account
adds up uses of product by type of use
2009 National Accounts (billions of dollars, calendar year)

Value-Added Income Expenditure

(loosely speaking, "supply") (loosely speaking, "demand")

Business 10,666 Compensation of employees 7,792 Personal consumption expenditures 10,089

Nonfarm 10,560 Proprietors' income 1,041 Gross private domestic investment 1,629
Farm 106 Rental income 268 nonresidential fixed 1,389
Households and institutions 1830 Corporate profits 1,309 residential fixed 361
Households 1062 Net interest 788 Change in private inventories -121
Nonprofit institutions
serving households 768 Indirect business taxes, net of subsidies 964 Net exports of goods and services -392
General government 1,760 Business current transfer payments 134 Government consumption and gross investment
2,931
Federal 559 Gov enterprise surplus -8 Federal 1,145
State and local 1,201 State and local 1,786
Consumption of fixed capital 1,864
Net income paid to ROW -105
Statistical discrepancy 209
TOTAL = GDP 14,256 TOTAL = GDP 14,256 TOTAL = GDP 14,256

Addendum: Addendum:
Gross housing value added 1,331 GNP = GDP - net income paid ROW 14,361
National Income = GNP - Consumption of
fixed capital - statistical discrepancy 12,288

Source: Bureau of Economic Analysis

Last Revised: March 26, 2010
 Factors of Production
1. factors of production (capital and labor) help interpret
the national accounts
2. preliminaries
a. stocks vs. flows
b. location of factors
3. factors in the income accounts
4. factors in the expenditure accounts
5. private vs. public sectors
6. factors and value-added are connected through the
production function