ECO 304L Chapter Unit 2: Ch 5-8,13: GDP and Income

• School: UT-Austin
• Department: Economics
• Course: ECO 304L
• Professor: M O S T A S H A R I, S H A L A H

Document Summary

Gdp and income: why gdp must equal income, at the aggregate level, income and production are conceptually the same thing. When goods are produced, they are eventually sold, and they generate revenue that goes into national income: example: think about a car that is produced and sold for ,000. This revenue generates various income flows, such as wages, profits, interest, and rent. Some of the revenue goes to buy intermediate goods. But payments for intermediate goods generate revenues for the firms that produce them and these revenues are also transformed into incomes. If you continue to trace the intermediate goods through the various stages of production, you will see that at each stage a greater and greater share of the ,000 in initial revenue is transformed into some kind of income. Production of output is the source of income. We think of income in terms of money because we value production by its money value.