Source: U.S. Bureau of Economic Analysis, National Income and ProductNational Income and Product Accounts of the United States, 1929-97, vol. 1, forthcoming;and Survey of Current Business, May 2000.

http://www.bea.doc.gov/bea/dn1.htm****************************************************************************************Terms

National income and product account

GDP is measured as the sum of personal consumption expenditures, gross private domestic investment (including change inbusiness inventories and before deduction of charges for CFC), net exports of goods and services (exports less imports), andgovernment consumption expenditures and gross investment. GDP excludes intermediate purchases of goods and services bybusiness.

Personal consumption expenditures is goods and services purchased by persons resident in the United States.Personal consumption expenditures (PCE) consists mainly of purchases of new goods and of services by individuals frombusiness. In addition, PCE includes purchases of new goods and of services by nonprofit institutions (includingcompensation of employees), net purchases of used goods by individuals and nonprofit institutions, and purchases abroad ofgoods and services by U.S. residents. PCE also includes purchases for certain goods and services provided bygovernment agenciesprimarily tuition payments for higher education, charges for medical care, and charges for water andsanitary services. Finally, PCE includes imputed purchases that keep PCE invariant to changes in the way that certainactivities are carried outfor example, whether housing is rented or owned, whether financial services are explicitlycharged, or whether employees are paid in cash or in kind.

The following conventions are used to classify each PCE commodity: Durable goods are commodities that can bestored or inventoried and that have an average life of at least 3 years; nondurable goods are all other commoditiesthat can be stored or inventoried; and services are commodities that cannot be stored and that are consumed at theplace and time of purchase.

Gross private domestic investment consists of fixed investment and change in business inventories.Fixed investment consists of both nonresidential fixed investment and residential fixed investment. Itconsists of purchases of fixed assets, which are commodities that will be used in a production process for more than 1 year,including replacements and additions to the capital stock, and it is measured before a deduction for consumption of fixedcapital. It covers all investment by private businesses and by nonprofit institutions in the United States, regardless ofwhether the investment is owned by U.S. residents. (Purchases of the same types of equipment and structures by governmentagencies are included in government gross investment.) It excludes investment by U.S. residents in other countries.Nonresidential fixed investment consists of both structures and producers' durable equipment (PDE).

Nonresidential structures consists of new construction, brokers' commissions on sales of structures, and net purchases ofused structures by private business and by nonprofit institutions from government agencies. New construction also includeshotels and motels and mining exploration, shafts, and wells.

Nonresidential PDE consists of private business purchases on capital account of new machinery, equipment such asfurniture, and vehicles (except for personal-use portions of equipment purchased for both business and personal use, whichare included in PCE), dealers' margins on sales of used equipment, and net purchases of used equipment from governmentagencies, from persons, and from the rest of the world.

Residential fixed investment consists of private structures and of residential PDEequipment owned by landlords andrented to tenants. Investment in structures consists of new units, improvements to existing units, mobile homes, brokers'commissions on the sale of residential property, and net purchases of used structures from government agencies.

Change in business inventories is the change in the physical volume of goods purchased by private business for usein the production of other commodities or for resale, valued in average prices of the period. It differs from the change in thebook value of inventories reported by most business; the difference is the inventory valuation adjustment (described on thenext page).

Net exports of goods and services is exports less imports of goods and services. Receipts andpayments of factor income and transfer payments to the rest of the world (net) are excluded.

Government consumption expenditures and gross investment consists of net purchases of goods, services, andstructures from business and from the rest of the world by general government; payments by general government tohouseholds in the form of compensation of employees; the consumption of general government fixed capital, whichrepresents the value of the current services of fixed assets of general government; net purchases of fixed assets bygovernment enterprises; inventory change of government enterprises; and a deduction for general governmentsalesprimarily tuition payments for higher education and charges for medical care. Of this total, gross investment is netpurchases of new and used structures and equipment by general government and government enterprises; all othertransactions are consumption expenditures. Government consumption expenditures and gross investment excludes purchasesby government enterprises (except for fixed assets), transfer payments, interest paid or received by government, subsidies,and transactions in financial assets and in nonproduced assets, such as land.

Chained-dollar measures

BEA also prepares measures of real GDP and its components in a dollar-denominated form, designated "chained (1992) dollarestimates." For GDP and most other series, these estimates are computed by multiplying the 1996 current-dollar value by acorresponding quantity index number and then dividing by 100.

For analyses of changes over time in an aggregate or in a component, the percentage changes calculated from the chained-dollarestimates and from the chain-type quantity indexes are the same; any differences will be small and due to rounding. However,because the relative prices used as weights for any period other than the base period differ from those used for the base period, thechained-dollar values for the detailed GDP components do not necessarily sum to the chained-dollar estimate of GDP or to anyintermediate aggregate. A measure of the extent of such differences is provided in most chained-dollar tables by a "residual" line,which indicates the difference between GDP (or an other major aggregate) and the sum of the most detailed components in the table.

For periods close to the base year, when there usually has not been much change in the relative prices that are used as the weightsfor the chain-type index, the residuals tend to be small, and the chained (1996) dollar estimates can be used to approximate thecontributions to growth and to aggregate the detailed estimates.

As one moves further from the base year, the residual tends to become larger, and the chained-dollar estimates become less usefulfor analyses of contributions to growth. In general, the use of chained-dollar estimates to calculate component shares or componentcontributions to real growth may be misleading for periods away from the base year. In particular, for components for which relativeprices are changing rapidly, these calculations may be misleading even just a few years from the base year.

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