Resources and uses of goods and services in 2021 National accounts - 2014 Base
The transactions on goods and services are linked by a relation of balance between resources and uses.
During a given period, the total resources for a product (good or service) are necessarily equal to the total uses. In the case of goods (and of some services) the changes in inventories enable the adjustment in time of supply and demand.
For the total economy, the balance relation between resources and uses is:
Production (P1) + Imports of goods and services (P7) + Taxes on products (D21) - Subsidies on products (D31) = Intermediate consumption (P2) + Final consumption expenditure (P3) + Gross fixed capital formation (P51g) + Changes in inventories (P52) + Acquisitions less disposals of valuables (P53) + Exports of goods and services (P6)
The main transactions of this relation are detailed in this item.
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Balance of resources and uses of goods and services
Operations in goods and services are linked by a relationship of balance between resources and uses.
Over a given period, the total resources for a product (good or service) are necessarily equal to the total uses. In the case of goods (and of some services), changes in inventories allow adjustments over time between supply and demand.
The balance between resources and uses for a given product is written as follows:
Production (P1) + Imports (P7) + Transport margins (P91) + Trade margins (P92) + Taxes on products (D21) - Subsidies on products (D31) = Intermediate consumption (P2) + Final consumption expenditure (P3) + Gross fixed capital formation (P51g) + Changes in inventories (P52) + Acquisitions less disposals of valuables (P53) + Exports (P6)
Production, imports and trade and transport margins (to which are added net taxes on the products after deduction of subsidies to assess them at their acquisition value) represent total resources (total supply).
Intermediate consumption, final consumption expenditure, gross fixed capital formation, changes in inventories, acquisitions less disposals of valuables and exports represent the total uses at acquisition cost (total demand).
Given that the total of transport and trade margins corresponds to the production of the transport and trade branches, the balance between resources and uses for all products is written as follows in simplified form:
Production (P1) + Imports (P7) + Taxes on products (D21) - Subsidies on products (D31) = Intermediate consumption (P2) + Final consumption expenditure (P3) + Gross fixed capital formation (P51g) + Changes in inventories (P52) + Acquisitions less disposals of valuables (P53) + Exports (P6)
If we choose to think, for the economy as a whole, in terms of added value at acquisition price (equal to Production - Intermediate consumption + Taxes on products - Subsidies on products, meaning equal to "Gross domestic product"), the balance between resources and uses can also be written:
Gross domestic product (GDP) = Final consumption expenditure (P3) + Gross fixed capital formation (P51g) + changes in inventories (P52) + Acquisitions less disposals of valuables (P53) + Exports (P6) - Imports (P7)
Final consumption expenditure, gross fixed capital formation, changes in inventories and acquisitions less disposals of valuables constitute domestic demand and exports minus imports, the foreign trade balance. Gross domestic product is therefore the sum of domestic demand and foreign trade balance.
Volume/price breakdown
One of the essential aims of the national accounts is to measure economic growth, defined as the change in gross domestic income in volume (meaning excluding the price effect).
To do this, it is essential to break down any changes in the value of the operations composing the balance in resources and uses of goods and services into two components:
- one factor quantifying the movement in prices,
- one factor quantifying the change in "volumes", meaning the change "at constant prices".
Therefore, change in value = change in volume x change in price.
To make this "volume/price" breakdown, many sources of information are used:
- for production: volume indices (from data in physical quantities, such as the industrial price index (IPI)), or, most often, value indices combined with producer price indices (PPI) for industry, sale price indices of services to businesses for services;
- for foreign trade: producer price indices on exports and price indices on imports;
- for uses: the consumer price index (CPI) in detail for a large number of products and a few specific indices, such as the index of the cost of construction (ICC) for housing.
In this way, for each account year, the balance of resources and uses of goods and services is calculated both at current prices and at the prices of the previous year.
The comparison of the results of year n, calculated at the prices of the previous year, with the results of year n-1 at current prices gives the change in volume between year n and year n-1.
Over a longer period, changes in volume are chain-linked to obtain results in "volume at previous year's chain-linked prices ". These are expressed for each year in the Euros of the base year, insofar as the change in the prices of the aggregates is neutralized between the base year and the considered year. This provides us, in particular, with changes in volume for the main operations in the balances of resources and uses of goods and services and for GDP. However, the results that are obtained cannot be simply added together and do not provide a way of checking that the accounts are balanced.