Titi
Chapter 15: Measuring a Nation’s income
The gross domestic product measures the total income of a nation. GDP is the most closely watched economic statistic because it is thought to be the best single measure of a society’s economic well-being.
The Economy’s Income and Expenditure
If you were to judge how a person is doing economically, you might first look at her or his income. A person with a high income can more easily afford life’s necessities and luxuries. The same logic applies to a nation’s overall economy. When judging whether the economy is doing well or poorly, it is natural to look at the national income that everyone in the economy is earning. That is the task of gross domestic product.
Why not total asset? Assets are only relevant for the income you can derive from it.
GDP measures two things at once: the total income of everyone in the economy and the total expenditure on the economy’s output of goods and services.
For any economy as a whole, income must equal expenditure. Why is this true? An economy’s income is the same as its expenditure because every transaction has two parties: a buyer and seller. Every dollar of spending by some buyer is a dollar of income for some seller.
Because every transaction has a buyer and a seller, the total expenditures in the economy must equal the total income in the economy. The equality of income and expenditure can be illustrated with the circular-flow diagram.
It is transactions between households and firms in a simple economy. Money continuously flows from households to firms and then back to households. GDP measures this flow of money. We can compute it for this economy in one of two ways: * By adding up the total expenditure by households or * By adding up the total income (wages, rent and profit) paid by firms.
Question? What two things does GDP measure? How can it measure two things at one?
The Measurement of Gross Domestic Product
Gross domestic product (GDP)
The gross domestic product measures the total income of a nation. GDP is the most closely watched economic statistic because it is thought to be the best single measure of a society’s economic well-being.
The Economy’s Income and Expenditure
If you were to judge how a person is doing economically, you might first look at her or his income. A person with a high income can more easily afford life’s necessities and luxuries. The same logic applies to a nation’s overall economy. When judging whether the economy is doing well or poorly, it is natural to look at the national income that everyone in the economy is earning. That is the task of gross domestic product.
Why not total asset? Assets are only relevant for the income you can derive from it.
GDP measures two things at once: the total income of everyone in the economy and the total expenditure on the economy’s output of goods and services.
For any economy as a whole, income must equal expenditure. Why is this true? An economy’s income is the same as its expenditure because every transaction has two parties: a buyer and seller. Every dollar of spending by some buyer is a dollar of income for some seller.
Because every transaction has a buyer and a seller, the total expenditures in the economy must equal the total income in the economy. The equality of income and expenditure can be illustrated with the circular-flow diagram.
It is transactions between households and firms in a simple economy. Money continuously flows from households to firms and then back to households. GDP measures this flow of money. We can compute it for this economy in one of two ways: * By adding up the total expenditure by households or * By adding up the total income (wages, rent and profit) paid by firms.
Question? What two things does GDP measure? How can it measure two things at one?
The Measurement of Gross Domestic Product
Gross domestic product (GDP)