Measurement of National
Income
1
, Economy’s income and expenditure
• Importance of income
– Standard of living
• The gross domestic product (GDP) is a measure of
– Total income of everyone in the economy
– Total expenditure on goods and services
• GDP is believed to be a good measure of a society's
economic well-being
• For economy as a whole, Income must equal expenditure
– Every transaction has a buyer and a seller
– Example
2
, The circular flow diagram
3
Income
1
, Economy’s income and expenditure
• Importance of income
– Standard of living
• The gross domestic product (GDP) is a measure of
– Total income of everyone in the economy
– Total expenditure on goods and services
• GDP is believed to be a good measure of a society's
economic well-being
• For economy as a whole, Income must equal expenditure
– Every transaction has a buyer and a seller
– Example
2
, The circular flow diagram
3
