GDP: Measuring national income

Circular flow of income and expenditure. Gross domestic product.

This very short tutorial gives us the big picture of what economics is all about and, in particular, compares macroeconomics (where you are now) to microeconomics.

Economics can some times get confusing because one person's expenditure is another person's income which can then be used for expenditure and on and on and on. Seems very circular. It is. This tutorial helps us grapple with this and introduces us to the primary tool economists use to measure a nations productivity/income/expenditure--GDP (gross domestic product).

You already understand the circular nature of the economy and how GDP is defined from the last tutorial. Now let's think about how economists define the composition of GDP. In particular, we'll focus on consumption (C), investment (I), government spending (G) and net exports.

The value of a currency is constantly changing (usually going down in terms of what you can buy). Given this, how can we compare GDP measured in dollars in one year to another year? This tutorial answers that question by introducing you to real GDP and GDP deflators.