Saturday, August 10, 2013

The way GDP is calculated has been revised. See this graph and explanation as to how much has been added and why...Good Stuff!!

My blogosphere friend The New Arthurian Economics has this graph comparing the old method (Blue Line) of calculating GDP to the new one (Red Line).  The biggest change is classifying Research and Development spending (in business and entertainment ) from an expense, which is not counted in GDP, to "fixed investment" This mostly mostly affects the "I" in our GDP equation = C+I+G+N(x), but there is some impact on "C" as well. This recalculation results in a new, higher level of GDP than previously calculated.

In short, some things, tangible and intangible, that used to be considered as a one time expense and not counted in GDP are now considered to be an integral part of the on-going value of the finished good or service.
Source: The New Arthurian  Economics

Here is the link to the Bureau of Economic Analysis breakdown of the changes. It is in PPT form so it is relatively easy to scroll through to get the gist of the changes.

Here are the major changes as mentioned in the above link:
1. Expenditures by business, government, and nonprofit institutions serving households (NPISH)for research and development (R&D) are recognized as fixed investment. The new treatment improves BEA’s measures of fixed investment and allows users to better measure the effects of innovation and intangible assets on the economy. 
2. Similarly, expenditures by private enterprises for the creation of entertainment, literary, and artistic originals are recognized as fixed investment, further expanding BEA’s measures of intangible assets. 
3. In the NIPA fixed investment tables, a new category of investment, "intellectual property products," consists of research and development; entertainment, literary, and artistic originals; and software.

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