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Introdution to the !yste"o# $ational Aounts %!$A&

'esson (Inter"ediate Consu"ption

and )alue Added

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Intermediate

Consumption *Inter"ediate onsu"ption onsists o# the

value o# the goods and servies onsu"ed

as inputs +y a proess o# prodution,eluding -ed assets hose onsu"ptionis reorded as onsu"ption o# -edapital/. %!$A 200, .21&

*Consu"ed as inputs/ "eans either*disappears during the produtionproess/ or *is physially trans#or"ed inso"e ay/

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Overheads

By *overheads/ e "ean things like theosts o# keeping the aounts, seeking-nane #or the +usiness, -nding ne

usto"ers, "arket researh and advertising. In a +read #atory, these are part o#

inter"ediate onsu"ption as "uh as heatgrain and ater.

3verhead epenses "ay +e ite"i4ed ino"pany aounts +ut a su+sidiary o# a"ultinational o"pany "ay sho the" as asingle line entry suh as *head o5eepenses/.

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Intermediate consumption

is not equal to purchasesof inputs We earlier noted that sales are not the

sa"e as output +eause so"eprodution "ay go into stoks o#-nished goods.

In eatly the sa"e ay, purhases o#

goods #or use as inputs are not thesa"e as inter"ediate onsu"ption.

Inter"ediate onsu"ption is e6ual topurhases o# inputs "inus the inrease

in stoks o# inputs. (

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Borderline issues

7ay"ents to govern"ent

Ino"e in kind

Gross -ed apital #or"ation

)alua+les

Researh and develop"ent and8ilitary e6uip"ent

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Payments to government

(1)!o"e are inter"ediate onsu"ption 8ost pay"ents to govern"ent +y produers are

taes on prodution. But so"e harges "ade

+y govern"ent are inter"ediate onsu"ption.

I# the govern"ent provides a servieo""ensurate ith the harge, then it is apay"ent #or a servie and is part o#

inter"ediate onsu"ption.

:a"ples ould +e harges #or erti#ying thataounts are orret, harges #or inspetingvehiles to "ake sure they are road;orthy,

passport #ees

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Payments to

government (2)!o"e are Taes on 7rodution

*Taes on prodution/ are +roken don into *Taeson produts/ and *3ther taes on prodution/.

Taes on produts =epend on the values or 6uantities o# produts 3nly paid i# there is so"e prodution :a"ples> )AT, sales taes, usto"s duties, eise

taes

3ther taes on prodution Are not related to the values or 6uantities o# produts 8ust +e paid +y a produer even i# no prodution :a"ples> e"ploy"ent taes, taes on vehiles,

taes on land and +uildings

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=oes govern"ent

provide a servieo""ensurate

ith the harge@

es

Inter"ediat

eonsu"ption

$o

=oes the hargedepend on the

value or 6uantityo# goods or

serviesprodued@

esTaes onproduts

$o 3ther taes

onprodution

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Payments to government

(3)What goes into Inter"ediate onsu"ption@ Clearly i# it is esta+lished that the pay"ent to

govern"ent is in ehange #or a genuine servie, it "ustgo into inter"ediate onsu"ption.

I# it is esta+lished that it is a *ta on produts/, it is notrelevant +eause it is eluded #ro" the Basi 7rie o#output.

But hat do e do i# it is deided that it is an /other taon prodution/@ ro" the produers point o# vie an*other ta on prodution/ is ust a ost o# prodution likeany other.

It "ay see" ar+itrary, +ut in the national aounts e

e!clude it from intermediate consumption. D

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Income in "ind versusIntermediate

consumptionIncome in "ind

Transport to ork

Eousing that an +e used

+y all "e"+ers o# the#a"ily

Cheap or #ree tikets #orpeople orking #or

airlines or railay

o"panies

ree oal #or oal "iners

ood and "eals #or#atory orkers

Intermediate consumption

7rotetive lothing anduni#or"s

Eousing #oronstrution and "ineorkers

8eals #or soldiers onative servie

ares and hotel ost #or+usiness travelers

irst aid and "edialhek;ups

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Intermediate consumption

versusCapital formation 8aintenane and repairs o# +uildings and

e6uip"ent are inter"ediate onsu"ption +ut

"aor renovations are Gross ied Capitalor"ation %GC&.

In the 1DD !$A, ependitures on o"puterso#tare and on "ineral eploration are GC. %Inthe 1D !$A they ere inluded in inter"ediateonsu"ption.&

In the 200 !$A, ependitures on RF= and oneapons are GC. %in the 1DD !$A they ereinluded in inter"ediate onsu"ption.&

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#alua$les

)alua+les ere an innovation o# the 1DD!$A.

)alua+les are o+ets that are purhased inthe epetation that they ill not lose theirvalue and "ay even +eo"e "orevalua+le over ti"e.

I# +usiness +uy *valua+les/ they are apital#or"ation not inter"ediate onsu"ption.

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%esearch and development and&ilitary equipment

%esearch and 'evelopment

R F = onsists o#ependitures on reativeork undertaken on asyste"ati +asis in orderto inrease the stok o#knoledge, and use o#this stok o# knoledge todevise ne appliations.(SNA 2008, 10.103)

In the 200 !$A RF= isGC and no longerinter"ediateonsu"ption.

&ilitary quipment

:penditures on "ilitarye6uip"ent are treated as-ed apital #or"ation.

:penditure on dura+le"ilitary goods suh as+o"+s and torpedoes arereorded as inventoriesuntil used hen they arereorded as inter"ediate

onsu"ption and aithdraal #ro" inventories.(SNA 2008, 6.232)

In the 1DD !$A eaponsere treated as

inter"ediate onsu"ption 1

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#alue dded

We have no de-ned gross output anddeided hat is to +e inluded ininter"ediate onsu"ption.

The dierene +eteen these to is )alueAdded. It is the valuethat has +een addedin

hanging inputs into outputs throughadding la+our, apital and %so"e ouldsay& entrepreneurship.

It is a key aggregate in eono"is and inpartiular #or studies o# produtivity andeono"i groth.

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'issecting #alue dded* +hat

is in there,

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Components of #alue

dded Co"pensation o# e"ployees

3ther taes on prodution %"inusother su+sidies on prodution&

Gross operating surplus

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-ross operating surplus has to

componentsConsumption of .!ed capital

CC is the deline in thevalue o# -ed apital assetsthrough o+solesene anduse in prodution.

It is a ost o# prodution andideally it should +e treatedlike any other ite" o#inter"ediate onsu"ption.

/et operating surplus

A#ter deduting CC, e are

le#t ith net operating surplus

!o"e ill +e used to payino"e taes and hat is le#till go to those ho have a*proprietary interest/ in the+usiness H +anks,shareholders and oners.

The operating surplus o# anuninorporatede enterprise isalled *8ied Ino"e/, notoperating surplus.

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+hat have e learned,

Inter"ediate onsu"ption %IC& onsists o# allurrent prodution epenses inludingoverheads.

IC inludes pay"ent to govern"ent #or anyservies provided +ut eludes other taes onprodutionJ.

Inter"ediate onsu"ption %IC& is deduted #ro"

output to get value added. )alue added is a +alaning ite" and inludes

o"pensation o# e"ployees, other taes onprodution, onsu"ption o# -ed apital andnet operating surplus.

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