5 ms·

To elaborate further, nominal GDP is the number of dollars spent in the economy. Nothing to do with income

by adam_arthur 4y ago

missedthecue 4y ago
Doesn't income equal expenditure? They are one and the same.
- adam_arthur 4y ago
  They're not 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
  - missedthecue 4y ago
    But the velocity of money doesn't change that. $1 spent is $1 of income no matter how or where it's spent. Every transaction necessarily has a buyer and a seller
    - adam_arthur 4y ago
      Income has nothing to do with GDP. Maybe do some research before littering the comments with uneducated takes. 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
      - missedthecue 4y ago
        Are you confusing the economic term "income" with wages?
        adam_arthur 4y ago
        We're taking about the colloquial definition of income as per the author's mistake with wages. And yes even income of producers is not GDP, because you have to factor in imports/exports
    - tremon 4y ago
      The same dollar changing hands every day for a week contributes $7 to the national GDP. A dollar changing hands only once contributes $1 to the national GDP.
  - reactspa 4y ago
    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.
  - gruez 4y ago
    >Leveraged buying such as real estate is in GDP 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/housings-economic-impact/housings-contribution-to-gross-domestic-product https://www.nahb.org/news-and-economics/housing-economics/ho...
    - adam_arthur 4y ago
      How do you think new construction is financed? What do you think has been the biggest contributor to Chinese GDP growth? Yet you say "not really", which is obviously wrong. Leverage impacts GDP, yes, and in a big way.
- tedsanders 4y ago
  Yes, they are the same. Economists consider GDP and GDI as two measurements of the same thing: https://www.stlouisfed.org/on-the-economy/2016/march/better-measurement-output-gdp-gdi https://www.stlouisfed.org/on-the-economy/2016/march/better-...
  - adam_arthur 4y ago
    GDI is not people's wages which is what the author mistakes. And GDI is not GDP because trade factors need to be netted out. Directly from your link: "Because the two series are measured differently" I forgot that two correlated series means they're the same thing. Huh
    - gizmo686 4y ago
      > In principle, these two series measure the same object. 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.
jltsiren 4y ago
GDP is the sum of the market values of all final goods and services produced. It can be determined equivalently by measuring production (or added value), income, or expenditure. "Final" is the key word: middlemen and other intermediate steps don't affect the GDP. Then there is GNI, or gross national income, which is basically GDP with some adjustments for international situations. In most cases, GDP and GNI are within a few percent of each other.
- adam_arthur 4y ago
  Income is not GDP. A US citizen buying a Chinese good does not contribute to US GDP. Can all these uneducated commenters please stop misleading people about very clear economic concepts. Lookup how the velocity of money is calculated in relation to GDP and it will be more clear to you and others
  - jltsiren 4y ago
    If a US resident (citizenship is irrelevant) buys Chinese goods, the money spent does not contribute to US domestic production, income, or expediture. The income they use to pay for the goods is based on domestic production / expenditure. The velocity of money is the ratio of GNI to money supply. I don't see how it's relevant here.
    - adam_arthur 4y ago
      - dang 4y ago
        Can you please not post like this, or like the comment upthread? If you know more than others, that's great, but in that case, please share some of what you know so the rest of us can learn, and definitely please don't put down those who know less, even if you find them annoying sometimes. https://hn.algolia.com/?dateRange=all&page=0&prefix=true&sort=byDate&type=comment&query=share%20know%20learn%20by:dang https://hn.algolia.com/?dateRange=all&page=0&prefix=true&sor...
JumpCrisscross 4y ago
> nominal GDP is the number of dollars spent in the economy. Nothing to do with income Dollars spent by one are earned by another. This is captured in the twin calculations of GDP: the expenditure approach and the income approach [1]. (NX and NFI being the border adjustment variables.) [1] https://corporatefinanceinstitute.com/resources/knowledge/economics/gdp-formula/ https://corporatefinanceinstitute.com/resources/knowledge/ec...
- adam_arthur 4y ago
  This is producers income, not wages as is obviously what is being referenced in this thread, and the layman's definition of income And dollars spent on imports do not increase local GDP
  - JumpCrisscross 4y ago
    > producers income, not wages TNI is the sum of all "sum of all wages, rent, interest, and profits." Wages are in GDP because the purchase and sale of labour is a transaction. Even in the expenditure approach, G includes government employees' wages. Did you click the CFI link? The "What is the GDP Formula?" section is less than 200 words. > dollars spent on imports do not increase local GDP No. Hence the NX/NFI border adjustment. (In the income approach we count foreigners' domestic incomes and citizens' foreign incomes instead of exports and imports.)
    - adam_arthur 4y ago
      Wages being included as a component in GDP calculation does not make wages equal to GDP.

To elaborate further, nominal GDP is the number of dollars spent in the economy. Nothing to do with income

missedthecue 4y ago

Doesn't income equal expenditure? They are one and the same.

adam_arthur 4y ago
They're not 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
- missedthecue 4y ago
  But the velocity of money doesn't change that. $1 spent is $1 of income no matter how or where it's spent. Every transaction necessarily has a buyer and a seller
  - adam_arthur 4y ago
    Income has nothing to do with GDP. Maybe do some research before littering the comments with uneducated takes. 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
    - missedthecue 4y ago
      Are you confusing the economic term "income" with wages?
      - adam_arthur 4y ago
        We're taking about the colloquial definition of income as per the author's mistake with wages. And yes even income of producers is not GDP, because you have to factor in imports/exports
  - tremon 4y ago
    The same dollar changing hands every day for a week contributes $7 to the national GDP. A dollar changing hands only once contributes $1 to the national GDP.
- reactspa 4y ago
  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.
- gruez 4y ago
  >Leveraged buying such as real estate is in GDP 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/housings-economic-impact/housings-contribution-to-gross-domestic-product https://www.nahb.org/news-and-economics/housing-economics/ho...
  - adam_arthur 4y ago
    How do you think new construction is financed? What do you think has been the biggest contributor to Chinese GDP growth? Yet you say "not really", which is obviously wrong. Leverage impacts GDP, yes, and in a big way.
tedsanders 4y ago
Yes, they are the same. Economists consider GDP and GDI as two measurements of the same thing: https://www.stlouisfed.org/on-the-economy/2016/march/better-measurement-output-gdp-gdi https://www.stlouisfed.org/on-the-economy/2016/march/better-...
- adam_arthur 4y ago
  GDI is not people's wages which is what the author mistakes. And GDI is not GDP because trade factors need to be netted out. Directly from your link: "Because the two series are measured differently" I forgot that two correlated series means they're the same thing. Huh
  - gizmo686 4y ago
    > In principle, these two series measure the same object. 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.

jltsiren 4y ago

GDP is the sum of the market values of all final goods and services produced. It can be determined equivalently by measuring production (or added value), income, or expenditure. "Final" is the key word: middlemen and other intermediate steps don't affect the GDP. Then there is GNI, or gross national income, which is basically GDP with some adjustments for international situations. In most cases, GDP and GNI are within a few percent of each other.

adam_arthur 4y ago
Income is not GDP. A US citizen buying a Chinese good does not contribute to US GDP. Can all these uneducated commenters please stop misleading people about very clear economic concepts. Lookup how the velocity of money is calculated in relation to GDP and it will be more clear to you and others
- jltsiren 4y ago
  If a US resident (citizenship is irrelevant) buys Chinese goods, the money spent does not contribute to US domestic production, income, or expediture. The income they use to pay for the goods is based on domestic production / expenditure. The velocity of money is the ratio of GNI to money supply. I don't see how it's relevant here.
  - adam_arthur 4y ago
    - dang 4y ago
      Can you please not post like this, or like the comment upthread? If you know more than others, that's great, but in that case, please share some of what you know so the rest of us can learn, and definitely please don't put down those who know less, even if you find them annoying sometimes. https://hn.algolia.com/?dateRange=all&page=0&prefix=true&sort=byDate&type=comment&query=share%20know%20learn%20by:dang https://hn.algolia.com/?dateRange=all&page=0&prefix=true&sor...

JumpCrisscross 4y ago

> nominal GDP is the number of dollars spent in the economy. Nothing to do with income Dollars spent by one are earned by another. This is captured in the twin calculations of GDP: the expenditure approach and the income approach [1]. (NX and NFI being the border adjustment variables.) [1] https://corporatefinanceinstitute.com/resources/knowledge/economics/gdp-formula/ https://corporatefinanceinstitute.com/resources/knowledge/ec...

adam_arthur 4y ago
This is producers income, not wages as is obviously what is being referenced in this thread, and the layman's definition of income And dollars spent on imports do not increase local GDP
- JumpCrisscross 4y ago
  > producers income, not wages TNI is the sum of all "sum of all wages, rent, interest, and profits." Wages are in GDP because the purchase and sale of labour is a transaction. Even in the expenditure approach, G includes government employees' wages. Did you click the CFI link? The "What is the GDP Formula?" section is less than 200 words. > dollars spent on imports do not increase local GDP No. Hence the NX/NFI border adjustment. (In the income approach we count foreigners' domestic incomes and citizens' foreign incomes instead of exports and imports.)
  - adam_arthur 4y ago
    Wages being included as a component in GDP calculation does not make wages equal to GDP.