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
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...
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.