Gross Output vs. GDP

[Widdekind]

GDP measures total revenue, for new final goods & services. GDP measures total "gross value added" to raw materials (zero value), to produce those goods & services (GDP value). However, new final goods & services, sold at retail stores, were gradually assembled, through many steps, along a "supply chain", with some "net value added" at each step. Intermediate producers buy partial products, add a "bell and a whistle", and pass them on. Their revenues are expenses to the next intermediate producer in the chain, and so on.

Gross Output (GO) accounts all of those intermediate sales. GO is the total sales volume, over all transactions, even sales of raw materials to intermediate producers, and intermediate products to final retailers. For the US, GO is nearly twice GDP. The ratio of GO/GDP measures both the "length & breadth" of the supply chain.

During expansions, both GDP & GO increase. But, GO surges more than GDP. The ratio of GO/GDP oscillates pro-cyciclically with the business cycle. The ratio crashes during recessions. Inexpertly, that implies that during upswings, more "bells & whistles" are added to more products; new "luxury" features are added, from new suppliers. The supply chain may lengthen, but it also broadens. Either way, sales volume not only increases over last year on pre-existing (intermediate) products, but new (intermediate) products are sought & supplied. Then, during downturns, those "luxury" features are foregone, as the supply chain contracts to more "necessary" components.

The large & growing multiplier, between GO/GDP, implies that a surging GDP opens up even more opportunities for business -- first, sales intensify over last year on the old supply chain; and they also "extensify", as the supply chain expands, to accept new inputs not seen before. Roughly, when retailers do +$1 of extra business "at the cash register"; then wholesalers are doing +$2 of extra business "back in the warehouse".




references
BEA : Gross-Domestic-Product-(GDP)-by-Industry Data
Gross output - Wikipedia, the free encyclopedia
Gross Output I | Wealth Alchemy

 

[editec]

Raw materials are NOT part of the GDP?

I did not know that.

So when coal (one example) is taken out of the ground that is NOT counted as part of the GDP?

Or does that mean that until that coal is SOLD, it is not counted as part of the GDP?

But certainly the wages paid to get that coal must be part of the GDP, yes?

Seriously questions, here, not editorial comments.

 

[Supposn]

Raw materials are NOT part of the GDP?

I did not know that.

So when coal (one example) is taken out of the ground that is NOT counted as part of the GDP?

Or does that mean that until that coal is SOLD, it is not counted as part of the GDP?

But certainly the wages paid to get that coal must be part of the GDP, yes?

Seriously questions, here, not editorial comments.

Editec, I’m pleased that you’re unaware of raw material being excluded from GDP because it’s not true. Widderkind has apparently misinterpreted what he read in Wikipedia.

Sh_t happens and defecation occurs. If I on occasion I can be in error we can’t expect perfection from mere mortals.

Respectfully, Supposn

 

[Widdekind]

Raw materials are NOT part of the GDP?

I did not know that.

GDP accounts only new final goods & services. The electricity generated, and sold, when coal is burned, is "GDP". The coal is an "intermediate product", part of "intermediate production":

GO = GDP (new final goods & services) + IP (raw materials, intermediate products)
= electricity + coal​

 

[Widdekind]

the wages paid to get that coal must be part of the GDP, yes?

the wages paid are implicitly "buried in GDP". But GDP measures total, gross, "retail revenues" to all businesses in the economy each year. Wages are one of their expenses. Over the entire economy, total, gross "revenues" (GDP) equal total gross "expenses" (e.g. taxes, wages) plus "savings" (e.g. corporate profits, personal savings).

 

[Supposn]

Widdekind, if a producer receives production support at lesser or no cost to themselves, the value of that support is not reflected within the finished product.

This is exactly what occurs when non-profit enterprises provide goods and services at lesser or no cost to attract or retain those producers within their geographic area. Universities, state and local governments often do exactly that. In such cases the produced finished products’ values are to some extent understated.

But a nation’s entire production, even raw materials and unfinished products are somehow captured by the calculation of their nations’ GDPs. The value of raw materials does not escape the calculation of GDPs.

This also explains how and why the values of globally traded products, (i.e. their imports and exports) are to some extent understated. All of the nation’s production is reflected within the calculation of GDP but it is not all attributed to global trade.

Respectfully, Supposn

 

[Quantum Windbag]

Raw materials are NOT part of the GDP?

I did not know that.

So when coal (one example) is taken out of the ground that is NOT counted as part of the GDP?

Or does that mean that until that coal is SOLD, it is not counted as part of the GDP?

But certainly the wages paid to get that coal must be part of the GDP, yes?

Seriously questions, here, not editorial comments.

If you think about it, it is pretty obvious, coal is not part of GDP until it is mined. If we counted raw materials as part of GDP it would go up every time new oil reserves were discovered.

Like I said, obvious, and so simple most people don't think about it.

 

[Supposn]

the wages paid to get that coal must be part of the GDP, yes?

the wages paid are implicitly "buried in GDP". But GDP measures total, gross, "retail revenues" to all businesses in the economy each year. Wages are one of their expenses. Over the entire economy, total, gross "revenues" (GDP) equal total gross "expenses" (e.g. taxes, wages) plus "savings" (e.g. corporate profits, personal savings).

Widdekind, I agree with you that GDP captures essentially the nation’s entire production.

You’re mistaken about savings. When writing or speaking casually, economist, (similar to us all), use the words savings and investments as synonyms. They differentiate their use of the words when writing precisely.

Investments are the dedication of goods and services to hopefully gain more wealth. We extend that to include the expenditure of wealth to purchase those goods and services to be “invested”. Deposits into financial institutions are transfers of wealth rather than investments. Transfers of wealth are excluded from the calculation of GDP.

Respectfully, Supposn

 

[Quantum Windbag]

Raw materials are NOT part of the GDP?

I did not know that.

GDP accounts only new final goods & services. The electricity generated, and sold, when coal is burned, is "GDP". The coal is an "intermediate product", part of "intermediate production":

GO = GDP (new final goods & services) + IP (raw materials, intermediate products)
= electricity + coal​

GDP measures the total value of all goods and services, not just final ones. The process of mining and refining raw materials adds to the GDP during the period measured because it is a service that adds to the value of the coal. The final value of the coal depends on what it is used for, which will affect the end value of GDP over the period that the coal is mined, refined, sold, and consumed.

 

[Quantum Windbag]

Widdekind, if a producer receives production support at lesser or no cost to themselves, the value of that support is not reflected within the finished product.

This is exactly what occurs when non-profit enterprises provide goods and services at lesser or no cost to attract or retain those producers within their geographic area. Universities, state and local governments often do exactly that. In such cases the produced finished products’ values are to some extent understated.

But a nation’s entire production, even raw materials and unfinished products are somehow captured by the calculation of their nations’ GDPs. The value of raw materials does not escape the calculation of GDPs.

This also explains how and why the values of globally traded products, (i.e. their imports and exports) are to some extent understated. All of the nation’s production is reflected within the calculation of GDP but it is not all attributed to global trade.

Respectfully, Supposn

Like I said, raw materials are not counted until they are mined. I suppose they could be, in theory, but there is no practical way to estimate the actual value of all the resources available to an economy until they actually enter the business cycle.

 

[Widdekind]

GDP measures the total value of all goods and services, not just final ones.

wrong (sorry)

GDP = total final goods & services
GO = GDP + intermediate goods
GO + wages = total goods & services, final & intermediate​

For the US, "GO + wages" totals nearly $40T / year. A 10% flat-rate tax, on all final & intermediate goods (cars, iron ore), and on all final & intermediate services (accountants, factory workers), would generate nearly $4T / year, enough to fund government at current levels

 

[Quantum Windbag]

GDP measures the total value of all goods and services, not just final ones.

wrong (sorry)

GDP = total final goods & services
GO = GDP + intermediate goods
GO + wages = total goods & services, final & intermediate​

For the US, "GO + wages" totals nearly $40T / year. A 10% flat-rate tax, on all final & intermediate goods (cars, iron ore), and on all final & intermediate services (accountants, factory workers), would generate nearly $4T / year, enough to fund government at current levels

Every single stage of turning coal into electricity is part of gross investment and is counted as part of the GDP.

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

Note: "Gross" means that GDP measures production regardless of the various uses to which that production can be put. Production can be used for immediate consumption, for investment in new fixed assets or inventories, or for replacing depreciated fixed assets. "Domestic" means that GDP measures production that takes place within the country's borders. In the expenditure-method equation given above, the exports-minus-imports term is necessary in order to null out expenditures on things not produced in the country (imports) and add in things produced but not sold in the country (exports).

Gross domestic product - Wikipedia, the free encyclopedia

 

[Widdekind]

Every single stage of turning coal into electricity is part of gross investment and is counted as part of the GDP.

you are confused.

First, "investment" (I) accounts the dollar value of construction of "fixed assets" (houses & buildings; machines & factories; computer hardware & software).

Second, every intermediate stage of turning coal into electricity is accounted into Gross Output (GO); only the final sale of electricity is accounted into GDP, under "consumption" (C), as a "service":

http://www.bea.gov/national/pdf/nipaguid.pdf​

 

[Widdekind]

Evidently, "GDP" does include some sales of "used" goods:

http://www.bea.gov/national/pdf/nipaguid.pdf​

The following figure follows the preceding .pdf accounting scheme (simplified, and highlighting components of "Personal Income (PI)" not accounted into "Household Income (HI)"):