Doesn't income equal expenditure? They are one and the same.
Velocity of money affects GDP. e.g. you spend a dollar, how quickly does that other person spend that same dollar.
Business to business spending is in GDP. Leveraged buying such as real estate is in GDP. Government spending is in GDP. Trade imbalances affect GDP.
People can save rather than spend their income, etc. Pretty clear
Every transaction necessarily has a buyer and a seller
And real income/GDP is what matters more in the end anyway. E.g. nominal wage increases aren't beneficial to people if their spending power is in decline
And yes even income of producers is not GDP, because you have to factor in imports/exports
A dollar changing hands only once contributes $1 to the national GDP.
1) Regarding velocity: if the other person quickly spends that same dollar, unless they spend it abroad, wouldn't it end up as someone else's income, domestically? So why should velocity matter?
2) Request you to elaborate your explanation using the example of a real country whose per capita GDP and per capita Income differ substantially.
These are basic concepts with clear definitions. Why so many argumentative comments trying to dispute a textbook definition? Look it up first and stop spreading false information
The income has already contributed to US GDP, by definition. The person has already produced goods or services and someone else has spent money on them, which becomes the income of the person in question. If the US person then buys Chinese goods, their expenditure does not contribute to US GDP.
How people elect to spend their income affects GDP, thus income does not equal GDP.
Have you figured it out yet?
If someone buys Chinese goods, they contribute to Chinese production, expenditure, and income.
We're talking about a very straightforward and obvious definition here. No need to confuse people
If you receive an income, someone had to spend money (in this case your employer). So it does in fact contribute to GDP, as your employer spent money buying your service/finished work.
So income you received already contributed to GDP, even if it just sits in your bank account. Now if you go onto spend it, it will further increase GDP, as you spending it will yield an income for someone else. If you leave it in the bank account, it will not further increase GDP, as it won't yield anyone an income.
Additionally, when a US citizen buys a Chinese good, it does in fact contribute to GDP - namely China's GDP.
If it's not clear to you by now, GDP is almost the same exact thing as money velocity, just divide it by the money supply and you have the velocity of money.
GP wrote:
> If I earn a dollar and don't spend it, it results in a lower GDP than if I spent it.
You disagreed.
Here's the situation:
Today I earn $10. I then do one of two things:
1 I save it for a rainy day.
2 I buy something with all $10.
In scenario two, GDP went up $10 over scenario one.
GDP has multiple different calculations:
Y = C + I + G + NX
or
GDP = Consumption + Investment + Government Spending + Net Exports
Another calculation is
Y = C + S + T
GDP = Consumption + Saving + Net Taxes
Saving either through investment and cash hoarding both count toward GDP. The percentage of GDP that is Saving is the Gross National Savings or National Savings Rate.
tldr; In isolation, scenario 1, Investment is $10 as inventory and Savings is $10. Both add toward GDP
> Thus income can not be treated as equivalent to GDP.
GDP is defined as total income, calculated in a certain way. There are also other equivalent definitions.
Income is the endpoint of economic activity. Your income contributes to the GDP when you earn it.
Your spending is largely unrelated to your income. In any period of time, you can spend more than you earn or less than that. Spending creates new economic activity. That activity contributes to the GDP, which by definition means creating new income.
> If I earn a dollar and don't spend it, it results in a lower GDP than if I spent it. Thus income can not be treated as equivalent to GDP.
It's the second part that I don't understand. Those two sentences read to me like: "Spending decisions impact GDP, therefore income is not equivalent to GDP."
I don't think anyone is claiming that spending would fail to increase GDP. But I still don't see how income is disconnected from GDP, since that spending would be someone else's income.
If people in the US buy things made in China, it is accounted for in both the GDP and the GDI in China by exactly the same amount (and likewise for US GDP and GDI if people in China buy things in the US).
[1] https://en.wikipedia.org/wiki/Gross_domestic_product#Income_... [2] https://www.bankofengland.co.uk/knowledgebank/what-is-gdp [3] https://www.nber.org/system/files/working_papers/w17421/w174...
Not really. Building new houses contributes to GDP, as does renovating it, but if you're buying an existing house the only part that contributes to GDP is the realtor/lawyer fees.
https://www.nahb.org/news-and-economics/housing-economics/ho...
Yet you say "not really", which is obviously wrong. Leverage impacts GDP, yes, and in a big way.
Directly from your link:
"Because the two series are measured differently"
I forgot that two correlated series means they're the same thing. Huh
Measurements have errors, particularly with something as complicated as the economy. The series are correlated because they are different measurements of the same underlying quantity. The correlation is not perfect because they measure that quantity differently, and so have different errors.
There being 3 different ways of measuring GDP (income, expendeture, and production) is not controversial. I am struggling to find any source on GDP measuring methodologies that does not acknowledge all 3.
Put another way, what produced value does not end up as income on someone's balance sheet; and an expense on someone else's?
Yes, a nation's economy is not a closed system, so you need to account for imports and exports, and this accounting manifests differently depending on which methedology you use.