GDP measures total income in an economy from "summary" of Principles of Macroeconomics by N. Gregory Mankiw
GDP, or gross domestic product, is a measure of the total income of everyone in the economy. It is the market value of all final goods and services produced within a country in a given period of time. In other words, GDP measures the value of the economy's output. This is an important concept because it helps us understand how well the economy is performing. When we think about total income in the economy, we are really looking at the total amount of money that is being earned by the people who participate in the economy. This includes not only workers and business owners, but also individuals who receive income from investments, such as interest and dividends. By adding up all of these sources of income, we can get a sense of how much wealth is being generated within the economy. It is important to note that GDP only measures the market value of goods and services that are produced for sale. This means that GDP does not take into account non-market activities, such as household work or volunteer work. While these activities may be valuable in their own right, they are not included in GDP because they do not involve a transaction in the market. In addition, GDP only measures the value of final goods and services. This means that intermediate goods, which are used to produce other goods, are not counted in GDP. For example, if a bakery produces bread using flour, the value of the flour is not included in GDP because it is considered an intermediate good. Only the value of the final product, the bread, is counted.- GDP provides us with a snapshot of the economy's performance by measuring the total income generated by all participants in the economy. By understanding GDP, we can gauge how well the economy is doing and make informed decisions about economic policy.
