6 ms·

I too am interested in the difference between GDP and Income, and my usual sources (e.g. Wikipedia) don't satisfy. 1) Regarding velocity: if the other person q

I too am interested in the difference between GDP and Income, and my usual sources (e.g. Wikipedia) don't satisfy. 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.

adam_arthur 4y ago
If people in the US buy things from China, the income they earn does not contribute to US GDP. One example. 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
- jltsiren 4y ago
  > If people in the US buy things from China, the income they earn does not contribute to US GDP. 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.
  - adam_arthur 4y ago
    Yes, thank you for proving my point. How people elect to spend their income affects GDP, thus income does not equal GDP. Have you figured it out yet?
    - jltsiren 4y ago
      You are looking at this the wrong way, from an individual perspective. National economy is about production, not consumption. Income is something that has already been earned, not something you choose to spend. Production comes first, and then expenditure gives it value and turns it into income. The way GDP is defined, the sum of domestic production in a time period is always the same as the sum of domestic expenditure and the sum of domestic income. If someone buys Chinese goods, they contribute to Chinese production, expenditure, and income.
      - adam_arthur 4y ago
        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. We're talking about a very straightforward and obvious definition here. No need to confuse people
        Rury 4y ago
        You clearly misunderstand what income is then. 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.
        coryrc 4y ago
        I'm not sure how you all are misunderstanding adam_arthur. 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.
        FootballMuse 4y ago
        Define "save for a rainy day". Are you talking about permanently putting it under your matress, leaving it in your checking account, or investing it? It will eventually be spent, and the only thing that is changing is the velocity. Either way, that is not necessarily correct. 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 https://en.wikipedia.org/wiki/National_saving https://en.wikipedia.org/wiki/National_saving
- em500 4y ago
  You're being downvoted because you're wrong about textbook definitions and then calling other commenters uneducated and spreading false information. GDP and GDI (aggregate domestic production and aggregate domestic income) measure the same thing both conceptually and in an accounting sense. Discrepancies are caused by measurement errors, because they're different concepts. This is literally textbook macro-economics (e.g. Mankiw Ch 3, or a wikipedia summary [1], or the Bank of Englands layman explanation [2], or NBER [3]). 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_approach https://en.wikipedia.org/wiki/Gross_domestic_product#Income_... [2] https://www.bankofengland.co.uk/knowledgebank/what-is-gdp https://www.bankofengland.co.uk/knowledgebank/what-is-gdp [3] https://www.nber.org/system/files/working_papers/w17421/w17421.pdf https://www.nber.org/system/files/working_papers/w17421/w174...

adam_arthur 4y ago

If people in the US buy things from China, the income they earn does not contribute to US GDP. One example. 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

jltsiren 4y ago
> If people in the US buy things from China, the income they earn does not contribute to US GDP. 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.
- adam_arthur 4y ago
  Yes, thank you for proving my point. How people elect to spend their income affects GDP, thus income does not equal GDP. Have you figured it out yet?
  - jltsiren 4y ago
    You are looking at this the wrong way, from an individual perspective. National economy is about production, not consumption. Income is something that has already been earned, not something you choose to spend. Production comes first, and then expenditure gives it value and turns it into income. The way GDP is defined, the sum of domestic production in a time period is always the same as the sum of domestic expenditure and the sum of domestic income. If someone buys Chinese goods, they contribute to Chinese production, expenditure, and income.
    - adam_arthur 4y ago
      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. We're talking about a very straightforward and obvious definition here. No need to confuse people
      - Rury 4y ago
        You clearly misunderstand what income is then. 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.
        coryrc 4y ago
        I'm not sure how you all are misunderstanding adam_arthur. 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.
        FootballMuse 4y ago
        Define "save for a rainy day". Are you talking about permanently putting it under your matress, leaving it in your checking account, or investing it? It will eventually be spent, and the only thing that is changing is the velocity. Either way, that is not necessarily correct. 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 https://en.wikipedia.org/wiki/National_saving https://en.wikipedia.org/wiki/National_saving
em500 4y ago
You're being downvoted because you're wrong about textbook definitions and then calling other commenters uneducated and spreading false information. GDP and GDI (aggregate domestic production and aggregate domestic income) measure the same thing both conceptually and in an accounting sense. Discrepancies are caused by measurement errors, because they're different concepts. This is literally textbook macro-economics (e.g. Mankiw Ch 3, or a wikipedia summary [1], or the Bank of Englands layman explanation [2], or NBER [3]). 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_approach https://en.wikipedia.org/wiki/Gross_domestic_product#Income_... [2] https://www.bankofengland.co.uk/knowledgebank/what-is-gdp https://www.bankofengland.co.uk/knowledgebank/what-is-gdp [3] https://www.nber.org/system/files/working_papers/w17421/w17421.pdf https://www.nber.org/system/files/working_papers/w17421/w174...