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0 sats \ 0 replies \ @Bell_curve 2 Jun \ on: GDP Vs GDI The Huge Discrepancy And Which Is The Better Measure Of The Economy? econ
GDP and GDI are two different measures of economic output, with some key differences:
GDP (Gross Domestic Product) measures the total value of goods and services produced within a country, calculated by adding up consumer spending, business investment, government spending, and net exports. It is the more widely used and reported metric.
GDI (Gross Domestic Income) measures the total income earned from the production of goods and services, calculated by summing wages, profits, rents, and other sources of income. It is an alternative way to estimate economic output.[1][3]
In theory, GDP and GDI should be equal since every dollar spent (GDP) must be received as income (GDI). However, they often diverge due to differences in data sources, estimation methods, and timing of revisions.[1][2][4]
Some key points about the GDP-GDI gap:
  • GDI may be a better indicator of turning points in the economy and at predicting recessions compared to GDP.[1][3]
  • The gap can signal issues like uneven income distribution, falling productivity/profits, or income flowing out of the country.[2]
  • Recent data shows GDI growing much slower than GDP, suggesting GDP may be overstating economic strength.[1][5]
  • The gap is expected to narrow as more data becomes available and revisions are made, but it persists even after revisions.[4]
So while GDP remains the headline metric, monitoring the GDP-GDI gap can provide useful insights into the true strength of the economy and potential warning signs.[1][2][3][4][5]
Sources [1] GDP may paint a sunny picture of the economy, but this number tells ... https://www.usatoday.com/story/money/2023/12/01/gross-domestic-income-gdi-possible-recession/71746276007/ [2] What Does the Gap between GDP and GDI Signal for Investors? https://www.thornburg.com/article/what-does-the-gap-between-gdp-and-gdi-signal-for-investors/ [3] Better Measure of Output: GDP or GDI? https://www.stlouisfed.org/on-the-economy/2016/march/better-measurement-output-gdp-gdi [4] The Discrepancy Between Expenditure- and Income-Side Estimates ... https://www.clevelandfed.org/publications/economic-commentary/2023/ec-202301-discrepancy-between-expenditure-income-side-estimates-us-output [5] Making Sense of the GDP-GDI Gap (Abecasis) https://www.gspublishing.com/content/research/en/reports/2024/02/11/ac7608b8-0385-4e97-86e0-064e27858d79.html
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