The Input Output Analysis

The Input-output model of economics uses a matrix representation of a nation's (or a region's) economy to predict the effect of changes in one
industry on others and by consumers, government, and foreign suppliers on the economy. Wassily Leontief (1905-1999) is credited with the
development of this analysis.

The International Input-Output Association is dedicated to advance knowledge in the field input-output study, which includes "improvements in basic
data, theoretical insights and modeling, and applications, both traditional and novel, of input-output techniques."

Input-output depicts inter-industry relations of an economy. It shows how the output of one industry is an input each other industry. Leontief put
forward the display of this information in the form of a matrix. Inputs typically are enumerated in the column of an industry. And its outputs are
enumerated in its corresponding row. This format, therefore, shows how dependent each industry is on all others in the economy both as customer of
their outputs and as supplier of their inputs. Each column of the input-output matrix reports the monetary value of an industry's inputs and each row
represents the value of an industry's outputs. Suppose there are three industries. Column 1 reports the value of inputs to Industry 1 from Industries 1,
2, and 3. Columns 2 and 3 do the same for those industries. Row 1 reports the value of outputs from Industry 1 to Industries 1, 2, and 3. Rows 2 and 3
do the same for the other industries.

While most uses of the input-output analysis focuses on the matrix set of inter-industry exchanges, the actual focus of the analysis from the
perspective of most national statistical agencies, which produce the tables, is the benchmarking of gross domestic product.

Input-output tables therefore are an instrumental part of national accounts. As suggested above, the core input-output table reports only intermediate
goods and services that are exchanged among industries.

But an array of row vectors, typically aligned below this matrix, record non-industrial inputs by industry like

 Payments for labor;

 Indirect business taxes;
 Dividends, interest, and rents;
 Capital consumption allowances (depreciation);
 Other property-type income (like profits); and purchases from foreign suppliers (imports).
At a national level, although excluding the imports, when summed this is called "gross product originating" or "gross domestic product by industry."
Another array of column vectors is called "final demand" or "gross product consumed."
This displays columns of spending by households, governments, changes in industry stocks, and industries on investment, as well as net exports. In
any case, by employing the results of an economic census, which asks for the sales, payrolls, and material/equipment/service input of each
establishment, statistical agencies back into estimates of industry-level profits and investments using the input-output matrix as a sort of double-
accounting framework. The mathematics of input-output economics is straightforward, but the data requirements are enormous because the
expenditures and revenues of each branch of economic activity have to be represented. As a result, not all countries collect the required data and data
quality varies, even though a set of standards for the data's collection has been set out by the United Nations through its System of National Accounts
(SNA): the replacement for the current 1993 SNA standard is pending. Because the data collection and preparation process for the input-output
accounts is necessarily labor and computer intensive, input-output tables are often published long after the year data was collected--typically as much
as 5-7 years after.

Usefulness

In addition to studying the structure of national economies, input-output economics has been used to study regional economies within a nation, and as
a tool for national and regional economic planning. Indeed, it may well be that a main use of input-output analysis is that for measuring the economic
impacts of events as well as public investments or programs. But it is also used to identify economically related industry clusters and also so-called
"key" or "target" industries--industries that are most likely to enhance the internal coherence of a specified economy. By linking industrial output to
satellite accounts articulating energy use, effluent production, space needs, and so on, input-output analysts have extended the approaches application
to a wide variety of uses.

Key Ideas

Leontief's seminal test remains one of the best expositions of input-output analysis. Nonetheless, two books--a rather fundamental one by William
Miernyk and another by the duo Ronald E. Miller and Peter D. Blair--probably have greater international currency. The latter is presently being
rewritten and re-released, this time by Cambridge University Press. See bibliography.

Input-output concepts are simple. Consider the production of the ith sector. We may isolate (1) the quantity of that production that goes to final
demand,ci, (2) to total output, xi, and (3) flows xij from that industry to other industries. We may write a transactions tableau

Table: Transactions in a Three Sector Economy

Economic Activities Inputs to Agriculture Inputs to Manufacturing Inputs to Transport Final Demand Total Output
Agriculture 5 15 2 68 90
Manufacturing 10 20 10 40 80
Transportation 10 15 5 0 30
Labor 25 30 5 0 60
Note that in the example given we have no input flows from the industries to 'Labor'.

We know very little about production functions because all we have are numbers representing transactions in a particular instance (single points on
the production functions):

The neoclassical production function is an explicit function Q = f(K,L),

Where Q = Quantity, K = Capital, L = Labor, And the partial derivatives ( ) are the demand schedules
for input factors.

Leontief, the innovator of input-output analysis, uses a special production function which depends linearly on the total output variables xi. Using
Leontief coefficients aij, we may manipulate our transactions information into what is known as an input-output table:

Introducing matrix notation, we can see how a solution may be obtained. Let

Denote the total output vector, the final demand vector, the unit matrix and the input-output matrix, respectively. Then:

Provided (I − A) is a regular matrix which can thus be inverted.

There are many interesting aspects of the Leontief system, and there is an extensive literature. There is the Hawkins-Simon Condition on reducibility.
There has been interest in disaggregation to clustered inter-industry flows, and the study of constellations of industries. A great deal of empirical
work has been done to identify coefficients, and data have been published for the national economy as well as for regions. This has been a healthy,
exciting area for work by economists because the Leontief system can be extended to a model of general equilibrium; it offers a method of
decomposing work done at a macro level.

Transportation is implicit in the notion of inter-industry flows. It is explicitly recognized when transportation is identified as an industry – how much
is purchased from transportation in order to produce. But this is not very satisfactory because transportation requirements differ, depending on
industry locations and capacity constraints on regional production. Also, the receiver of goods generally pays freight cost, and often transportation
data are lost because transportation costs are treated as part of the cost of the goods.

Walter Isard and his student, Leon Moses, were quick to see the spatial economy and transportation implications of input-output, and began work in
this area in the 1950s developing a concept of interregional input-output. Take a one region versus the world case. We wish to know something about
interregional commodity flows, so introduce a column into the table headed “exports” and we introduce an “input” row.

A more satisfactory way to proceed would be to tie regions together at the industry level. That is, we identify both within region inter-industry
transactions and among region inter-industry transactions. A not-so-small problem here is that the table gets very large very quickly.

Input-output, as we have discussed it, is conceptually very simple. Its extension to an overall model of equilibrium in the national economy is also
relatively simple and attractive. But there is a downside. One who wishes to do work with input-output systems must deal skillfully with industry
classification, data estimation, and inverting very large, ill-conditioned matrices. Moreover, changes in relative prices are not readily handled by this
modeling approach alone. Of course, input-output accounts are part and parcel to a more flexible form of modeling, Computable general equilibrium
models.
Forecasting and/or Analysis Using Input-Output

Table: Input-Output Model for Hypothetical Economy Total requirements from regional industries per dollar of output delivered to final
demand
Purchasing Industry Agriculture Transport Manufacturer Services
Selling Industry
Agriculture 1.14 0.22 0.13 0.12
Transportation 0.19 1.10 0.16 0.07
Manufacturing 0.16 0.16 1.16 0.06
Services 0.08 0.05 0.08 1.09
Total 1.57 1.53 1.53 1.34

Input-output Analysis versus Consistency Analysis

Despite the clear ability of the input-output model to depict and analyze the dependence of one industry or sector on another, Leontief and others
never managed to introduce the full spectrum of dependency relations in a market economy. In 2003, Mohammad Gani, a pupil of Leontief,
introduced Consistency Analysis in his book 'Foundations of Economic Science', which formally looks exactly like the input-output table, but
explores the dependency relations in terms of payments and intermediation relations. Consistency analysis explores the consistency of plans of
buyers and sellers by decomposing the input-output table into four separate matrices, each for a different kind of means of payment. It integrates
micro and macroeconomics in one model and deals with money in a fully ideology-free manner. It deals with the flow of funds vis-a-vis the
movement of goods.

In a technical sense, input-output analysis can be seen as a special case of consistency analysis without money and without entrepreneurship and
transaction cost.
The gross domestic product (GDP) or gross domestic income (GDI) is one of the measures of national income and input for a given country's
economy. GDP is defined as the total cost of all finished goods and services produced within the country in a stipulated period of time (usually a 365-
day year). It is sometimes regarded as the sum of profits added at every level of production (the intermediate stages) of all final goods and services
produced within a country in a stipulated timeframe, and it is rarely given a monetary value.

The most common approach to measuring and quantifying GDP is the expenditure method:

GDP = consumption + gross investment + government spending + (exports − imports), or,

GDP = C + I + G + (X-M).

"Gross" means depreciation of capital stock is not taken into consideration. If net investment (which is gross investment taking depreciation into
consideration) is substituted for gross investment in the equation above, then the formula for net domestic product is obtained. Consumption and
investment in this equation are expenditure on final goods and services. The exports-minus-imports part of the equation (often called net exports)
adjusts this by subtracting the part of this expenditure not produced domestically (the imports), and adding back in domestic area (the exports).

Economists (since Keynes) have preferred to split the general consumption term into two parts; private consumption, and public sector (or
government) spending. Two advantages of dividing total consumption this way in theoretical macroeconomics are:

• Private consumption is a central concern of welfare economics. The private investment and trade portions of the
economy are ultimately directed (in mainstream economic models) to increases in long-term private consumption.
• If separated from endogenous private consumption, government consumption can be treated as exogenous,[citation needed]
so that different government spending levels can be considered within a meaningful macroeconomic framework.

GDP vs. GNP

GDP can be contrasted with gross national product (GNP, or gross national income, GNI), which the United States used in its national accounts
until 1992. The difference is that GNP includes net foreign income (the current account) rather than net exports and imports (the balance of trade).
Put simply, GNP adds net foreign investment income compared to GDP. United States GDP, GNP and GNI (Gross National Income) can be compared
at EconStats.

GDP is concerned with the region in which income is generated. It is the market value of all the output produced in a nation in one year. GDP focuses
on where the output is produced rather than who produced it. GDP measures all domestic production, disregarding the producing entities'
nationalities.
In contrast, GNP is a measure of the value of the output produced by the "nationals" of a region. GNP focuses on who owns the production. For
example, in the United States, GNP measures the value of output produced by American firms, regardless of where the firms are located. Year-over-
year real GNP growth in the year 2007 was 3.2%.

Measuring GDP

The components of GDP

Each of the variables C (Consumption), I (Investment), G (Government spending) and X-M (Net Exports) (where GDP = C + I + G + (X-M) as
above)

(Note: * GDP is sometimes also referred to as Y in reference to a GDP graph)

• C (Consumption) is private consumption in the economy. This includes most personal expenditures of households such
as food, rent, and medical expenses and so on but does not include new housing.
• I (Investment) is defined as investments by business or households in capital. Examples of investment by a business
include construction of a new mine, purchase of software, or purchase of machinery and equipment for a factory. Spending
by households (not government) on new houses is also included in Investment. In contrast to its colloquial meaning,
'Investment' in GDP does not mean purchases of financial products. Buying financial products is classed as 'saving', as
opposed to investment. The distinction is (in theory) clear: if money is converted into goods or services, it is investment;
but, if you buy a bond or a share of stock, this transfer payment is excluded from the GDP sum. That is because the stocks
and bonds affect the financial capital which in turn affects the production and sales which in turn affects the investments.
So stocks and bonds indirectly affect the GDP. Although such purchases would be called investments in normal speech,
from the total-economy point of view, this is simply swapping of deeds, and not part of real production or the GDP formula.
• G (Government spending) is the sum of government expenditures on final goods and services. It includes salaries of
public servants, purchase of weapons for the military, and any investment expenditure by a government. It does not
include any transfer payments, such as social security or unemployment benefits.
• X (Exports) is gross exports. GDP captures the amount a country produces, including goods and services produced for
other nations' consumption, therefore exports are added.
• M (Imports) is gross imports. Imports are subtracted since imported goods will be included in the terms G, I, or C, and
must be deducted to avoid counting foreign supply as domestic.
Examples of GDP component variables

Examples of C, I, G, and NX: If you spend money to renovate your hotel so that occupancy rates increase, that is private investment, but if you buy
shares in a consortium to do the same thing it is saving. The former is included when measuring GDP (in I), the latter is not. However, when the
consortium conducted its own expenditure on renovation, that expenditure would be included in GDP.

For example, if a hotel is a private home then renovation spending would be measured as Consumption, but if a government agency is converting the
hotel into an office for civil servants the renovation spending would be measured as part of public sector spending (G).

If the renovation involves the purchase of a chandelier from abroad, that spending would also be counted as an increase in imports, so that NX would
fall and the total GDP is affected by the purchase. (This highlights the fact that GDP is intended to measure domestic production rather than total
consumption or spending. Spending is really a convenient means of estimating production.)

If a domestic producer is paid to make the chandelier for a foreign hotel, the situation would be reversed, and the payment would be counted in NX
(positively, as an export). Again, GDP is attempting to measure production through the means of expenditure; if the chandelier produced had been
bought domestically it would have been included in the GDP figures (in C or I) when purchased by a consumer or a business, but because it was
exported it is necessary to 'correct' the amount consumed domestically to give the amount produced domestically. (As in Gross Domestic Product.)

1. Current GDP is GDP expressed in the current prices of the period being measured
2. Nominal GDP growth is GDP growth in nominal prices (unadjusted for price changes).
3. Real GDP growth is GDP growth adjusted for price changes.

Calculating the real GDP growth allows economists to determine if production increased or decreased, regardless of changes in the purchasing power
of the currency.

The GDP income account

Another way of measuring GDP is to measure the total income payable in the GDP income accounts. In this situation, Gross Domestic Income (GDI)
is sometimes used rather than Gross Domestic Product. This should provide the same figure as the expenditure method described above. (By
definition, GDI=GDP. In practice, however, measurement errors will make the two figures slightly off when reported by national statistical agencies.)

The formula for GDP measured using the income approach, called GDP(I), and is:

GDP = Compensation of employees + Gross operating surplus + Gross mixed income + Taxes less subsidies on production
and imports
 Compensation of employees (COE) measures the total remuneration to employees for work done. It includes wages and
salaries, as well as employer contributions to social security and other such programs.

• Gross operating surplus (GOS) is the surplus due to owners of incorporated businesses. Often called profits, although
only a subset of total costs are subtracted from gross output to calculate GOS.
• Gross mixed income (GMI) is the same measure as GOS, but for unincorporated businesses. This often includes most
small businesses.

The sum of COE, GOS and GMI is called total factor income, and measures the value of GDP at factor (basic) prices. The difference between basic
prices and final prices (those used in the expenditure calculation) is the total taxes and subsidies that the Government has levied or paid on that
production. So adding taxes less subsidies on production and imports converts GDP at factor cost to GDP(I).

Another formula can be written as this:

GDP = R + I + P + SA + W Where R = rents I = interests P = profits SA = statistical adjustments (corporate income taxes,
dividends, undistributed corporate profits) W = wages

Measurement

International standards

The international standard for measuring GDP is contained in the book System of National Accounts (1993), which was prepared by representatives
of the International Monetary Fund, European Union, Organization for Economic Co-operation and Development, United Nations and World Bank.
The publication is normally referred to as SNA93 to distinguish it from the previous edition published in 1968 (called SNA68).

National measurement

Within each country GDP is normally measured by a national government statistical agency, as private sector organizations normally do not have
access to the information required (especially information on expenditure and production by governments).

Interest rates

Net interest expense is a transfer payment in all sectors except the financial sector. Net interest expenses in the financial sector are seen as production
and value added and are added to GDP..
Cross-border comparison

The level of GDP in different countries may be compared by converting their value in national currency according to either

• current currency exchange rate: GDP calculated by exchange rates prevailing on international currency markets
• Purchasing power parity exchange rate: GDP calculated by purchasing power parity (PPP) of each currency relative to
a selected standard (usually the United States dollar).

The relative ranking of countries may differ dramatically between the two approaches.

• The current exchange rate method converts the value of goods and services using global currency exchange rates. This
can offer better indications of a country's international purchasing power and relative economic strength. For instance, if
10% of GDP is being spent on buying hi-tech foreign arms, the number of weapons purchased is entirely governed by
current exchange rates, since arms are a traded product bought on the international market (there is no meaningful 'local'
price distinct from the international price for high technology goods).
• The purchasing power parity method accounts for the relative effective domestic purchasing power of the average
producer or consumer within an economy. This can be a better indicator of the living standards of less-developed countries
because it compensates for the weakness of local currencies in world markets. (For example, India ranks 12th by nominal
GDP but 4th by PPP). The PPP method of GDP conversion is most relevant to non-traded goods and services.

There is a clear pattern of the purchasing power parity method decreasing the disparity in GDP between high and low income (GDP) countries, as
compared to the current exchange rate method. This finding is called the Penn effect.

Standard of living and GDP

World GDP per capita (in 1990 international dollars) changed very little for most of human history before the industrial revolution.
(Note the empty areas mean no data, not very low levels. There are data for the years 1, 1000, 1500, 1600, 1700, 1820, 1900,
and 2003.)

GDP per capita is often used as an indicator of standard of living in an economy, the rationale being that all citizens would benefit from their
country's increased economic production.
The major advantages to using GDP per capita as an indicator of standard of living are that it is measured frequently, widely and consistently;
frequently in that most countries provide information on GDP on a quarterly basis (which allows a user to spot trends more quickly), widely in that
some measure of GDP is available for practically every country in the world (allowing crude comparisons between the standard of living in different
countries), and consistently in that the technical definitions used within GDP are relatively consistent between countries, and so there can be
confidence that the same thing is being measured in each country.

The major disadvantage of using GDP as an indicator of standard of living is that it is not, strictly speaking, a measure of standard of living. GDP is
intended to be a measure of particular types of economic activity within a country. Nothing about the definition of GDP suggests that it is necessarily
a measure of standard of living. For instance, in an extreme example, a country which exported 100 per cent of its production and imported nothing
would still have a high GDP, but a very poor standard of living.

The argument in favor of using GDP is not that it is a good indicator of standard of living, but rather that (all other things being equal) standard of
living tends to increase when GDP per capita increases. This makes GDP a proxy for standard of living, rather than a direct measure of it. GDP per
capita can also be seen as a proxy of labor productivity. As the productivity of the workers increases, employers must[citation needed] compete for them by
paying higher wages. Conversely, if productivity is low, then wages must be low or the businesses will not be able to make a profit.

There are a number of controversies about this use of GDP.

Limitations of GDP to judge the health of an economy

GDP is widely used by economists to gauge the health of an economy, as its variations are relatively quickly identified. However, its value as an
indicator for the standard of living is considered to be limited. Criticisms of how the GDP is used include:

• Wealth distribution - GDP does not take disparity in incomes between the rich and poor into account. However,
numerous Nobel-prize winning economists have disputed the importance of inequality as a factor in improving long-term
economic growth. In fact, short term increases in inequality may even lead to long term decreases in inequality.
• Non-market transactions - GDP excludes activities that are not provided through the market, such as household
production and volunteer or unpaid services. As a result, GDP is understated. Unpaid work conducted on Free and Open
Source Software (such as Linux) contribute nothing to GDP, but it was estimated that it would have cost more than a billion
US dollars for a commercial company to develop. Also, if Free and Open Source Software became identical to its proprietary
software counterparts, and the nation producing the propriety software stops buying proprietary software and switches to
Free and Open Source Software, then the GDP of this nation would reduce, however there would be no reduction in
economic production or standard of living. The work of New Zealand economist Marilyn Waring has highlighted that if a
concerted attempt to factor in unpaid work were made, then it would in part, undo the injustices of unpaid (and in some
cases, slave) labor, and also provide the political transparency and accountability necessary for democracy. Shedding some
 doubt on this claim, however, is the theory that won economist Douglass North the Nobel Prize in 1993. North argued that
the creation and strengthening of the patent system, by encouraging private invention and enterprise, became the
fundamental catalyst behind the Industrial Revolution in England.
• Underground economy - Official GDP estimates may not take into account the underground economy, in which
transactions contributing to production, such as illegal trade and tax-avoiding activities, are unreported, causing GDP to be
underestimated.
• Non-monetary economy - GDP omits economies where no money comes into play at all, resulting in inaccurate or
abnormally low GDP figures. For example, in countries with major business transactions occurring informally, portions of
local economy are not easily registered. Bartering may be more prominent than the use of money, even extending to
services (I helped you build your house ten years ago, so now you help me).
• Quality of goods - People may buy cheap, low-durability goods over and over again, or they may buy high-durability
goods less often. It is possible that the monetary value of the items sold in the first case is higher than that in the second
case, in which case a higher GDP is simply the result of greater inefficiency and waste. (This is not always the case;
durable goods are often more difficult to produce than flimsy goods, and consumers have a financial incentive to find the
cheapest long-term option. With goods that are undergoing rapid change, such as in fashion or high technology, the short
lifespan may increase customer satisfaction by allowing them to have newer products.)
• Quality improvements and inclusion of new products - By not adjusting for quality improvements and new products,
GDP understates true economic growth. For instance, although computers today are less expensive and more powerful
than computers from the past, GDP treats them as the same products by only accounting for the monetary value. The
introduction of new products is also difficult to measure accurately and is not reflected in GDP despite the fact that it may
increase the standard of living. For example, even the richest person from 1900 could not purchase standard products,
such as antibiotics and cell phones that an average consumer can buy today, since such modern conveniences did not
exist back then.
• What is being produced - GDP counts work that produces no net change or that results from repairing harm. For
example, rebuilding after a natural disaster or war may produce a considerable amount of economic activity and thus
boost GDP. The economic value of health care is another classic example — it may raise GDP if many people are sick and
they are receiving expensive treatment, but it is not a desirable situation. Alternative economic measures, such as the
standard of living or discretionary income per capita better measure the human utility of economic activity. See
uneconomic growth.
• Externalities - GDP ignores externalities or economic bads such as damage to the environment. By counting goods which
increase utility but not deducting bads or accounting for the negative effects of higher production, such as more pollution,
GDP is overstating economic welfare. However, the costs of cleaning up the environment are included in GDP.
• Sustainability of growth - GDP does not measure the sustainability of growth. A country may achieve a temporarily high
GDP by over-exploiting natural resources or by misallocating investment. For example, the large deposits of phosphates
gave the people of Nauru one of the highest per capita incomes on earth, but since 1989 their standard of living has
declined sharply as the supply has run out. Oil-rich states can sustain high GDPs without industrializing, but this high level
 would no longer be sustainable if the oil runs out. Economies experiencing an economic bubble, such as a housing bubble
or stock bubble, or a low private-saving rate tend to appear to grow faster owing to higher consumption, mortgaging their
futures for present growth. Economic growth at the expense of environmental degradation can end up costing dearly to
clean up; GDP does not account for this.

• One main problem in estimating GDP growth over time is that the purchasing power of money varies in different proportion
for different goods, so when the GDP figure is deflated over time, GDP growth can vary greatly depending on the basket of
goods used and the relative proportions used to deflate the GDP figure. For example, in the past 80 years the GDP per
capita of the United States if measured by purchasing power of potatoes, did not grow significantly. But if it is measured by
the purchasing power of eggs, it grew several times. For this reason, economists comparing multiple countries usually use
a varied basket of goods.
• Cross-border comparisons of GDP can be inaccurate as they do not take into account local differences in the quality of
goods, even when adjusted for purchasing power parity. This type of adjustment to an exchange rate is controversial
because of the difficulties of finding comparable baskets of goods to compare purchasing power across countries. For
instance, people in country A may consume the same number of locally produced apples as in country B, but apples in
country an are of a more tasty variety. This difference in material well being will not show up in GDP statistics. This is
especially true for goods that are not traded globally, such as housing.
• Transfer pricing on cross-border trades between associated companies may distort import and export measures[citation needed].
• As a measure of actual sale prices, GDP does not capture the economic surplus between the price paid and subjective
value received, and can therefore underestimate aggregate utility.
• Austrian economist critique - Criticisms of GDP figures were expressed by Austrian economist Frank Shostak. Among
other criticisms, he stated the following:

The GDP framework cannot tell us whether final goods and services that were produced during a particular period of time are a reflection of real wealth
expansion, or a reflection of capital consumption.

National accounts or national account systems (NAS) provide a complete and consistent conceptual framework for measuring the economic
activity of a nation (or other geographic area in the broader term social accounts). These include detailed underlying measures that rely on double-
entry accounting. By construction such accounting makes the totals on both sides of an account equal even though they each measure different
characteristics (Ruggles, 1987). Whilst sharing many common principles with business accounting, national accounts are firmly based on economic
concepts.

National accounts broadly present the production, income and expenditure activities of the economic actors (corporations, government, households)
in an economy, including their relations with other countries' economies, and their wealth. They present both flows during a period and stocks at the
end of a period, ensuring that the flows are fully reconciled with the stocks. National accounts also include measures of the stocks and flows of
financial assets and liabilities (commonly called "financial accounts" or "flow of funds" accounts).
There are a number of aggregate measures in the national accounts, most notably gross domestic product or GDP - which is the most widely used
measure of aggregate economic activity in a period - disposable income, saving and investment. These aggregate measures and their development
over time are generally of strongest interest to economic policymakers, although the detailed national accounts contain a rich source of information
for economic analysis, for example in the input-output tables which show how industries interact with each other in the production process.

For example, in the United States the national income and product accounts (NIPA) provide estimates for the money value of income and output
respectively per year or quarter, including GDP. NIPA entries are called flows, to indicate that they are measured over time. Another application is the
national balance sheet as to assets on one side, including the capital stock, and liabilities and wealth on the other, measured as of the end of the
accounting period. Entries here are called stocks, to indicate their accumulation to a point in time, as distinct from a flow, which is measured over
time.

Main components

The presentation of national accounts data may vary by country (commonly, aggregate measures are given greatest prominence), however the main
national accounts include the following accounts for the economy as a whole and its main economic actors.

• Current accounts:
• Production accounts which record the value of domestic output and the goods and services used up in producing that
output. The balancing item of the accounts is value added, which is equal to GDP when expressed for the whole economy
at market prices and in gross terms;
• Income accounts, which show primary and secondary income flows - both the income generated in production (e.g.
wages and salaries) and distributive income flows (predominantly the redistributive effects of government taxes and social
benefit payments). The balancing item of the accounts is disposable income ("National Income" when measured for the
whole economy);
• Expenditure accounts, which show how disposable income is either consumed or saved. The balancing item of these
accounts is saving.
• Capital accounts, which record the net accumulation, as the result of transactions, of non-financial assets; and the
financing, by way of saving and capital transfers, of the accumulation. Net lending/borrowing is the balancing item for
these accounts
• Financial accounts, which show the net acquisition of financial assets and the net incurrence of liabilities. The balance on
these accounts is the net change in financial position.
 • Balance sheets, which record the stock of assets, both financial and non-financial, and liabilities at a particular point in
time. Net worth is the balance from the balance sheets (United Nations, 1993).

The accounts may be measured as gross or net of consumption of fixed capital (a concept in national accounts similar to depreciation in business
accounts).