Net Netional Product

Gross national product is by far the most widely used measure of the total production of final goods and services in the economy. But it includes some producers’ goods that just replace already-existing producers’ goods that are “depre- ciating,” or wearing out. If a truck lasts ten years, we might say that one-tenth of it is used up every year, and the oil company that owns it would con-of the national income (since they don’t reflect any current production). We must add these transfer payments in ro get total personal income. (Details are shown in Table 4-4.)

In 1966, total personal income was $580 bil- lion. Table 4-3 shows what people did with this income: First, they paid their personal taxes. What they had left we call “disposable personal income.” Most of this they spent on consumption and the rest they saved. The concept of “dispos- able personal income” (what people have left after they pay their taxes) will be very important later on in our analysis of consumer spending and sav- ing behavior.

* Data from U.S. Department of Commerce. Consumer out-
lays include $12 billion of consumer interest payments which are
excluded from the “consumer purchases” shown in Table 4.1.
The Department of Commerce defines “consumer expenditures”
to include only consumer payments for goods and services.

* A few minor items are omitted, which explain the appar-
ent discrepancies in the table.

** Includes $12 billion of interest paid by consumers not
considered an expenditure on goods and services.

The Integrated National Income Accounts

If you have the concepts of gross national product and personal income well in hand, you’re prepared to cope with a good many problems. For example, most newspaper stories and business magazines focus on these measures. But for clear thinking in some of the following analysis, you need to have a more detailed grasp of the relation- ships between the various parts of the total in- come and product accounts. Table 4-4 summarizes the complete set of interconnections for 1966, be- ginning with the gross national product total. Figure 4-2 shows the same set of interconnections as a flow diagram, tracing the entire income-and- payments flow. This figure ties the circular flow of gross national product back to the simple, fundamental circular flow diagram in Fig. 2-1.

In Fig. 4-2, begin with gross national prod- uct of $740, as in Table 4-4. Then $63 billion of capital consumption (depreciation) allowances drains off as a form of private saving, leaving $677 billion of net national product. From n.n.p., an- other $66 billion drains off to the government through indirect business taxes, leaving national income of $610 billion. From this, corporate in- come taxes, social security taxes, and corporate saving (undistributed profits) are drained off; while interest on the government debt and other transfer payments are added back into the income stream, to make up $580 billion of personal in- come. The resulting personal income total is reduced to personal disposable income by the payment of personal income taxes, and then part of disposable income goes into personal savings while the bulk flows on into consumption ex- penditures. These consumption expenditures in turn become part of gross national product.

Now add back in the private investment and government spending flows—the private savings that flow into investment expenditures and the government tax receipts that flow into govern- ment spending on goods and services. Together these three types of spending make up gross na- tional product, the three big components of aggregate demand for currently produced goods and services—consumption, investment, and gov- ernment spending. Remember them, for they pro- vide the core of the analysis of Chapters 6, 7 and 8.