That part of disposable income not spent on current consumption; disposable income less consumption2.All disposable incomeis either consumed or savedThe Flow of Income 1.The dollar value of outputwill always equal thedollar value of income2.Total income (GDP) ends up distributed in the following waya.To householdsin the form of disposable incomeb.Tobusinessin the form of retained earningsanddepreciation allowancesc.To governmentin the form oftaxesThe Circular Flow of Spending and Income
1.GDPrepresents the dollar value of final outputsold in the product market2.The revenue stream flowing from GDP works its way through NDP, NI, and PI before reaching households in the form of smaller DI3.DIis in turn either spentor savedby consumers4.This consumption, plus investment, government spending, and net exports, continues the circular flowIncome and Expenditure 1.The flow of income that starts withGDPultimately returns to the market inthe form of new consumption (C), investment (I), andgovernment purchases (G)2.Expenditure flows-With particular emphasis on their abilityto keep the economy producingat its full potentialIntangibles 1.We all realize that well-being arises from both material and intangible pleasures2.But the intangibles tend to be elusive3.It’s not easy to gauge individual happiness, much less to ascertain the status of our collective sati s faction4.We have to rely on measures we can see, touch, and count5.However, more physical output may actually worsen our collective welfare6.If increased automobile production raises congestion and pollution levels, the rise in GDP occasioned by those additional cars is a misleading index of society’s welfare7.In such a case, the rise in GDP might actually mask a decrease in the well-being of the populationIndex of Well-Being 1.Social welfareand economic welfarearen’t always synonymous2.The GDP accountstell us whether our economic welfarehas increased, as measured by the value of goods and services produced3.They don’t tell us how highly we value additional goods and services relative to nonmarket phenomena and whether important social costs were incurred in the process of production4.These judgments must be made outside the market- social decisions
Material Wealth vs. Social Health 1.Thenational income accountsemphasize material well-being2.They are an important, but not a complete, gauge of our societal welfare
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