In a country, various types of goods and services are produced. These goods are material goods, non-material goods, and consumer goods and produced goods. Such goods may be non-durable, semi-durable and durable.
From the point of view of national income accounting, goods are divided into two categories- Intermediate goods and final goods. All those goods, which are used for the production of other goods, are intermediate goods. Raw materials and semi-finished goods come under this category. Final goods refer to the finished goods, which do not undergo further processing. These goods satisfy the wants of ultimate producers or consumers or both.
Production boundary is an imaginary line around the producing sector. So long as a commodity is transacted within this boundary, it is regarded as an intermediate goods. But the moment it passes the production boundary it become a final goods.
The use of intermediate goods (or nonfactor inputs) in the process of production is known as intermediate consumption. Demand for intermediate consumption refers to the amount of expenditure incurred by all the producing enterprises on intermediate goods in an economy.
Demand for intermediate consumption by Corporate and Quasi – corporate enterprises consists of the expenditure on the items, viz. (i) Non durable goods and services (ii) Repair and maintenance of capital goods (iii) Research and development.
Demand for intermediate consumption by the general government includes expenditure on non – durable goods, durable goods, value of gifts from foreign governments, etc.
Demand for Intermediate consumption by the household enterprises consists of expenditure on non–durable goods and on the maintenance of residential house etc.
Demand for final consumption refers to the expenditure on final consumer goods. Demand for final consumption consists of households’ final consumption and general government’s final consumption.
Capital formation refers to the addition made to the existing capital stock in a country during a given period. Gross Domestic capital formation (GDCF) refers to the capital formation that takes place inside the domestic territory during a year.
Gross Domestic Capital Formation consists of Gross domestic fixed capital formation and change stock.
Stock refers to the unutilized stock of raw – materials, work in progress, and unsold stock of finished goods lying with all the sectors of an economy at a point of time.
Change is stock with a producing enterprise is the difference between the closing stock and opening stock of raw materials, semi – finished goods and unsold finished products over a period of time (usually one year). Change in stock in the domestic territory of a country consists of change in stock with the enterprises, with general government and change in livestock.
Net Domestic capital formation is the Gross Domestic capital formation minus capital consumption (or Depreciation). Capital consumption refers to the loss in value undergone by the fixed capital assets in the process of producing during an accounting period.
Value of output refers to the value of total output produced during an accounting year at market price.
Gross value added at market price is the value output at market price minus at value of intermediate consumption. Gross value added at factor cost is the gross value added at market price minus net indirect taxes. Net indirect tax is the difference between Indirect tax and subsidies.
Net value added at market price (NVAMP) is the Gross value added at market price minus capital consumption.
Net value added at factor cost is the net value added at market price minus net indirect taxes.
When net value added factor cost of all enterprises, general government and mixed income of the self-employed are combined, we get net value added at factor cost inside the domestic territory of a country. This is also known as the net domestic product at factor cost.
Value of output in the general government is calculated on the basic of cost providing goods and services such as defence, law and order, civil administration, education and health etc. This is equal to the sale of services plus free supply of services to the general public.
Mixed income of the self-employed persons refers to the income of the self employed persons such as doctors, lawyers, charted accountants etc. and unincorporated enterprises like small shopkeepers and small manufactures.