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Let's say the man invests all his money in a socks business. In the first case his socks business will demand 25k less. The maid will demand 25k more. I still s

Let's say the man invests all his money in a socks business. In the first case his socks business will demand 25k less. The maid will demand 25k more. I still see effect 0. I think the problem is people are not considering savings in the equation...

maratd 14y ago
In the first scenario, the income of the man is 200K and the income of the woman is 25K. For a total income of 225K. It doesn't matter where the money comes from or is going. That's the income both will write on the federal returns or whatever you want, for the sake of the example. When they get married, the man's income stays the same. The woman's income evaporates. She's not getting paid anymore. So their combined income is now 200K. But the situation is exactly the same! The same amount of work is being done. GDP works exactly the same way. It's an account of money flows, not production or actual economic activity.
- viandante 14y ago
  Again, in the first case the man is simply spending the 25k on the maid. In the second case he will spend the 25k in something else. That something else will then spend the 25k as the maid would have done. No change.
  - yummyfajitas 14y ago
    Again, in the first case the man is simply spending the 25k on the maid. In the second case he will spend the 25k in something else. Again, you are looking at the GDP of the man, not of the pair of people. Because the man first spends 25k, and then the maid spends 25k again, the 25k is counted twice in GDP statistics. In the second case, it is counted once. This is why GDP != Income.
    - viandante 14y ago
      Well, let's say that now that he saves 25k for the maid, he hires a gardner. GDP 225 again? So basically the GDP depends on the number of transactions? Is that so?
      - maratd 14y ago
        Yes, that is so. GDP = Gross Domestic Product. It's gross. Not net. There is no saving, no subtraction of any kind. Just addition.

maratd 14y ago

In the first scenario, the income of the man is 200K and the income of the woman is 25K. For a total income of 225K. It doesn't matter where the money comes from or is going. That's the income both will write on the federal returns or whatever you want, for the sake of the example. When they get married, the man's income stays the same. The woman's income evaporates. She's not getting paid anymore. So their combined income is now 200K. But the situation is exactly the same! The same amount of work is being done. GDP works exactly the same way. It's an account of money flows, not production or actual economic activity.

viandante 14y ago
Again, in the first case the man is simply spending the 25k on the maid. In the second case he will spend the 25k in something else. That something else will then spend the 25k as the maid would have done. No change.
- yummyfajitas 14y ago
  Again, in the first case the man is simply spending the 25k on the maid. In the second case he will spend the 25k in something else. Again, you are looking at the GDP of the man, not of the pair of people. Because the man first spends 25k, and then the maid spends 25k again, the 25k is counted twice in GDP statistics. In the second case, it is counted once. This is why GDP != Income.
  - viandante 14y ago
    Well, let's say that now that he saves 25k for the maid, he hires a gardner. GDP 225 again? So basically the GDP depends on the number of transactions? Is that so?
    - maratd 14y ago
      Yes, that is so. GDP = Gross Domestic Product. It's gross. Not net. There is no saving, no subtraction of any kind. Just addition.