Civil Engineering Reference
In-Depth Information
Figure 13.1
The circular flow of income, output and expenditure
The diagram highlights two flows: a monetary flow and a real flow of goods and
services. The two lower flows indicate the factor market - households exchange their
factors of production with businesses in return for payment. The two upper flows
show the product market - businesses provide a flow of goods and services in return
for monetary expenditure.
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e
Businesses
Households
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M
GDP and Growth
Before considering any figures, however, we must fully understand what they convey
and the significance of any changes in their size. In simple terms,
gross domestic
product
(GDP) can be regarded as the annual domestic turnover; or, to employ the
analogy used in
Chapter 12,
the result of a giant till ringing up all the transactions
that occur within a specific territory. In formal terms:
GDP represents the total money value of all the production that has taken
place inside a specific territory during one year.
An alternative measure is
gross national income
(GNI). This is very similar to GDP,
but includes a net figure for employment, property and entrepreneurial income
flowing in and out of a nation's economy from overseas - in other words, GNI
aggregates all the activity that generates income to a specific nationality. In practice,
GDP and GNI represent very similar amounts. For example, in 2010 GDP in the
UK totalled £1,458 billion and GNI was £21 billion more at £1,479 billion. In
European states, GDP and GNI rarely differ by more than 1 or 2 per cent, but the
difference may be substantially larger in less developed economies.
