Measuring Total Output and Income
6.1 Measuring Total Output
- GDP is the sum of final goods and services produced for consumption (C), private investment (I), government purchases (G), and net exports (Xn). Thus GDP = C + I + G + Xn.
- GDP can be viewed in the context of the circular flow model. Consumption goods and services are produced in response to demands from households; investment goods are produced in response to demands for new capital by firms; government
purchases include goods and services purchased by government agencies; and net exports equal exports less imports.
- Total output can be measured two ways: as the sum of the values of final goods and services produced and as the sum of values added at each stage of production.
- GDP plus net income received from other countries equals GNP. GNP is the measure of output typically used to compare incomes generated by different economies.