First, the expenditure method of accounting for GDP
Expenditure method of accounting for GDP, from the use of the product, the expenditure of the final product purchased in a year to sum up the total of the expenditure of the final product produced during the year to calculate the market value of the final product. This method is also known as the final product method and the product flow method.
If Q1, Q2?......Qn are used to represent the production of various final products, and P1, P2......Pn represent the price of various final products, the formula for accounting for GDP using the expenditure method is:
Q1P1+ Q2P2+......QnPn=GDP
In real life, the final use of products and services, mainly residential consumption, business investment, government purchases and exports. Therefore, to account for GDP by the expenditure method is to account for the sum of the expenditures of a country or region in a certain period of time in terms of residents' consumption, business investment, government purchases and net exports.
1. Consumption (denoted by the letter C) includes expenditures on consumer durables such as refrigerators, color TVs, washing machines, and automobiles, non-durable consumer goods such as clothing and food, and expenditures on labor such as medical care, travel, and haircuts. Expenditures on building homes are not considered consumption.
2. Business investment (denoted by the letter I) refers to expenditures on adding or renewing capital assets, including plant, machinery and equipment, dwellings and inventories. Investment includes two main categories: investment in fixed assets and investment in inventories. Investment in fixed 2. assets refers to investment in new plant, purchase of new equipment, and construction of new dwellings. Why is residential construction an investment and not a consumption? Because dwellings, like other fixed assets, are used for a long time and slowly consumed. Inventory investment is an increase or decrease in the inventory (or what becomes inventory) held by a business. If the national business inventory at the beginning of the year is $200 billion and at the end of the year it is $220 billion, then inventory investment is $20 billion. Inventory investment may be positive or negative because the value of inventory at the end of the year may be greater or less than inventory at the beginning of the year. Business inventory is considered an investment because it generates income. From the point of view of national economic statistics, products that are produced but not sold can only be treated as investment in the inventory of the enterprise, so that GDP statistics from the production point of view and GDP statistics from the point of view of expenditure are consistent.
Investment included in GDP is gross investment, the sum of replacement investment and net investment, which is also known as depreciation.
The division between investment and consumption is not absolute; the exact classification depends on what is specified in the actual statistics.
3. Government purchases (denoted by the letter G) refers to expenditures by all levels of government for the purchase of goods and services, which include government expenditures for the purchase of arms, services of the army and the police, office supplies and office facilities for government offices, the organization of public **** works such as roads, and the opening of schools. Salaries paid by the government to government employees are also government purchases. Government purchases are substantial expenditures that show a two-way movement of goods, services and money, which directly creates social demand and becomes a component of the gross domestic product (GDP). Government purchases are only a part of government spending, and other parts of government spending such as government transfers and interest on the public debt are not included in GDP.Government transfers are expenditures made by the government not in return for goods and services produced in the current year, including government expenditures on social welfare, social insurance, unemployment relief, poverty assistance, old age security, health care, and subsidies to agriculture. Government transfer payment is the government through its functions to transfer and redistribute income among different members of society, transferring the income of one part of the population to another part of the population, in essence, a kind of wealth redistribution. When there are government transfer payments occur, that is, when the government pays these expenditures, it does not receive any goods and services accordingly; government transfer payments are a kind of monetary expenditures, and the total income of the whole society does not change. Therefore, government transfer payments are not included in the GDP.
4. Net exports (represented by the letters X-M, where X means exports and M means imports) are the difference between imports and exports. Imports should be subtracted from the country's total purchases because they indicate a flow of income from abroad and, at the same time, are not expenditures for the purchase of domestic products; exports should be added to the country's total purchases because they indicate an inflow of income from foreign countries, which are expenditures for the purchase of domestic products, and, therefore, net exports should be counted as part of total expenditures. Net exports may be positive or negative.
Add the above four items together and you have the formula for calculating GDP using the expenditure method:
GDP = C + I + G + (X-M)
In our statistical practice, the expenditure method calculates the division of GDP into final consumption, gross capital formation, and total net exports of goods and services, which reflects the use of GDP produced in the period and its composition.
Final consumption is divided into residential consumption and government consumption. Residents' consumption, in addition to the consumption of goods and services purchased directly in monetary terms, also includes consumption expenditure on goods and services acquired in other ways, the so-called virtual consumption expenditure. Residents' virtual consumption expenditures include the following types: goods and services provided by units to workers in the form of in-kind compensation and in-kind transfers; financial media services provided by financial institutions; and insurance services provided by insurance companies.
With the GDP calculated by the expenditure method, we can calculate the consumption rate and the investment rate. The so-called consumption rate is the ratio of final consumption to GDP, and the so-called investment rate is the ratio of gross capital formation to GDP. According to the relevant statistics, in recent years, China's consumption rate has shown a relatively obvious downward trend, and in 2005, China's consumption rate was 52.1% and investment rate was 43.4%. Compared with the world level, China's consumption rate is obviously on the low side. Therefore, the current and future period, an important element of macroeconomic control is to adjust the ratio of investment and consumption, expanding consumer demand is the focus of expanding domestic demand.
Two, with the income method of accounting for GDP
Income method of accounting for GDP, is from the perspective of income, the factors of production in the production of a variety of income added to the calculation of GDP, that is, the wages received by the labor, landowners get the rent, the interest received by the capital and entrepreneurs to get the profit to add to the calculation of GDP. this method is also known as the elemental payment method, factor cost method.
In a simple economy without government, the value added by firms, the gross domestic product they create, is equal to factor income plus depreciation, but when the government intervenes, it often levies indirect taxes, and GDP at that point should also include indirect taxes and corporate transfer payments. Indirect taxes are taxes levied on the sale of products, and they include excise taxes and turnover taxes. Such taxes are nominally levied on businesses, but they can be built into the cost of production and ultimately passed on to consumers, so they should also be considered a cost. Similarly, there are corporate transfers (i.e., corporate social charitable contributions to non-profit organizations and consumer bad debt), it is not a factor of production to create income, but to be transferred to the consumer through the price of the product, so it should also be regarded as a cost.
Capital depreciation should also be included in GDP because it is not factor income but is included in total investment.
Also, the income of unincorporated business owners should be included in GDP. Income of non-corporate entrepreneurs is the income of doctors, lawyers, small shopkeepers, farmers, etc. They use their own funds, self-employment, their wages, interest, rent is difficult to be divided into their own business as the company's accounts should be wages, interest on their own funds, rent of their own house, etc., and their wages, interest, profits, rent is often mixed together as non-company entrepreneurs income.
In this way, the formula calculated by the income method is:
GDP = Wages + Interest + Profit + Rent + Indirect Taxes and Corporate Transfers + Depreciation
It can also be viewed as GDP = Income from Factors of Production + Income from Unproduced Factors
Theoretically, the GDP calculated by the income method is quantitatively equal to that calculated by the expenditure method. equivalent.
Third, the production method of accounting for GDP
The production method of accounting for GDP refers to the calculation of gross domestic product according to the output value of each sector that provides material goods and services. The production method is also called the sectoral method. This method of calculation reflects the source of GDP.
When calculating using this method, each production sector deducts the output value of intermediate goods used and only the value added is calculated. Sectors such as commerce and services are also calculated using the value added method. Sectors such as health, education, administration, and household services, which cannot calculate their value added, calculate the value of their services on the basis of wage income.
Accounting for GDP by the production method, it can be divided into the following sectors: agriculture, forestry, and fishing; mining; construction; manufacturing; transportation; postal, telecommunication, and public utilities; electricity, gas, and water; wholesale and retail commerce; finance, insurance, and real estate; services; and government services and government enterprises. Summing the GDP produced by the above sectors and adding it to the net foreign factor income, and taking into account the statistical error term, you get the GDP calculated using the production method.
Theoretically, GDP calculated by the expenditure method, the income method and the production method are quantitatively equal, but there is often an error in the actual accounting, and thus a statistical error term has to be added to make adjustments to achieve consistency. In actual statistics, the expenditure method of the System of National Economic Accounts (SNA) is generally used as the basic method, i.e., the GDP calculated by the expenditure method is used as the standard.
In China's statistical practice, the income method of calculating GDP is divided into four items:
GDP = compensation of laborers + net production tax + depreciation of fixed assets + operating surplus
The first item is compensation of laborers. It refers to all the remuneration received by laborers for engaging in production activities. Including the various forms of wages, bonuses and allowances received by the workers, both in monetary form and in kind; also includes the workers enjoy the public health care and medicine and health costs, transportation subsidies and social insurance premiums paid by the unit.
The second item is net production, which refers to the balance of production tax minus production subsidies. Production tax refers to various taxes, surcharges and fees imposed by the government on production units for producing, selling and engaging in business activities, as well as for the use of certain factors of production (e.g., fixed assets, land, labor) for engaging in production activities. Production subsidies, in contrast to production taxes, are unilateral revenue transfers from the government to production units, and are therefore considered negative production taxes, including policy loss subsidies, price subsidies in the food system, and export tax rebates for foreign trade enterprises.
The third item is depreciation of fixed assets, which refers to the depreciation of fixed assets extracted in accordance with the approved depreciation rate of fixed assets in order to make up for the depletion of fixed assets in a certain period. It reflects the transfer value of fixed assets in the current period of production.
The fourth item is the operating surplus, which refers to the balance of the value added created by the resident unit after deducting labor remuneration, net production tax and depreciation of fixed assets. It corresponds to the operating profit of the enterprise plus the production subsidy.
Four, two systems of national income accounting
The above introduced is the Western System of National Income Accounting (SNA for short). This system is based on Western economic theory, which considers the creation of material products and the provision of services to labor activities are value-creating production activities, and takes the gross domestic product (GDP) as the core indicator for accounting national economic activities. The Western national income accounting system is a method of accounting for the national economy adopted by most countries at present, and is a more reasonable and scientific accounting system. First of all, in today's world economy, where the trend of globalization, integration, marketization and informatization is strengthening, the information, knowledge, technology and labour sectors are becoming increasingly important in economic life, and the value created by the tertiary sector is taking up a larger and larger proportion of modern economic life, while the status of material production in the overall economic life has relatively declined. Therefore, it is necessary that non-material production labor should be counted in the national income accounting system and the market value of all paid labor should be included in GDP. Secondly, double counting can be avoided when accounting for national income according to the SNA, and the distinction between nominal and real GDP, etc. is also reasonable. Of course, this system of using GDP to measure the level of total output of the national economy, the degree of economic development, and the standard of living, etc. is also flawed. For example, non-market-traded activities (e.g., household activities, subsistence production) are not reflected, it does not account for the enjoyment and security of people's leisure, it does not reflect the level of environmental pollution in a country, there is inevitably some double counting in it, and so on. Before the end of the Cold War in the 1990s, there was another system of national economic accounting, the system of balance sheets of material products (or MPS for short) for countries with centrally planned economies, which was used in the former USSR, Eastern Europe, and China. The system was based on Marx's theory of reproduction and used gross social product and national income as the basic indicators reflecting the total results of national economic activity. This accounting system, compatible with the highly centralized planning and management system, once played an important role, but with the reform and development of the global market economy system, its shortcomings have become increasingly prominent. For example, it fails to reflect the development of non-material production sectors, such as information and labor services, and is not conducive to reflecting the comprehensive national strength and rational adjustment of the industrial structure; it fails to systematically reflect the movement of social funds, and is not conducive to the country's macro-management and regulation; and it fails to reflect the overall picture of the national economic cycle and the convergence of the various segments of the cycle, and is not conducive to the country's mastery of the overall balance of the entire economic operation. Therefore, countries with economies in transition, such as Eastern Europe and Russia, as well as China, have gradually adopted the Western national economic accounting system. Since 1985, China has formally adopted the GDP indicator as the main indicator for assessing the development of the national economy and formulating the strategic objectives of economic development. At present, China has calculated and published GDP figures, but has not yet calculated and published figures for such indicators as net domestic production, national income, personal income and personal disposable income