Posts tagged with: National accounts

Blog author: jcarter
Friday, March 11, 2016

What is Gross Domestic Product (GDP)? The definition is rather straightforward: GDP is the market value of all finished goods and services, produced within a country in a year. But that’s not very useful in trying to understand the concept.

In this video by Marginal Revolution University, they recommend thinking ofthe economy as a giant supermarket, with billions of goods and services inside. At the checkout line, you watch as the cashier rings up the price for each finished good or service sold. What have you just observed?

Wilkins Micawber from David Copperfield art by Frank Reynolds (2)

Wilkins Micawber, the namesake for the Micawber Principle.

Joe Carter points to a Lifehacker article that sums up two basic equations that lead to the creation of wealth (with what I consider to be a clarifying correction applied in the first formula):

Income > spending = surplus

Surplus x time = wealth

Likewise, Wilhelm Röpke, in his A Humane Economy, points to two equations arising from classical literature that connect surplus with happiness and deficit to misery (the Micawber Principle).

According to Mr. Micawber from Dickens’ David Copperfield:

Annual income £20, annual expenditure £19.975 = happiness

Annual income £20, annual expenditure £20.025 = misery