MGEA06H3 Lecture Notes - Lecture 2: Income Approach, Externality

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Add factor incomes (eg-profit,rent,wages,interest payments) and non-factor payments(eg-depreciation, tax) of all firms in the production of goods and services in the economy to find the gdp. All methods of measuring gdp gives the same result as long as our calculation is right. Ans- in economics, any transaction has two sides, we always have a buyer and a seller. From a buyer"s perspective, if i spend on coffee, i get my cup of coffee, but from the seller"s perspective that is their income. So, if we add up everybody"s spending of an economy it got to be equal to everybody"s income. In simpler words, one person"s spending is equal to another person"s income. For economy as a whole, total expenditure= total income. When it"s stated that usa has the largest economy in the world, it doesn"t mean it has the largest geographical area, it"s talking about the size of gdp.

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