The table below demonstrates how a nation’s GDP is determined. The table contains specimen transactions. Not all of a nation’s transactions relevant to GDP determination are included, just a sample. The table reveals the logic behind GDP determination and the role of the actors. It’s worth noting immediately that the government is a producer of goods and services and that government produced goods and services are included in GDP at cost. Household income is derived from wages and self-employment. Rentier income is derived solely from ownership of financial capital or property; rentiers do not produce anything.
The advantages of setting out GDP determination in tabular format are several.
Firstly , for those wishing to learn the basics it demonstrates the logic underpinning GDP determination. Included in this group could be first year undergraduates in economics, accountancy, business studies, and cognate subjects. As a former teacher myself, demonstration is vastly superior to presenting equations or relying on words to convey knowledge. In my experience, students will thank you for providing demonstrations to accompany words and to explain equations.
Secondly, it provides a format whereby students’ understanding can be tested. It should be fairly straigtforward to provide pre-printed tables with appropriately headed columns for students to use to enter a list of transactions under examination conditions.
Thirdly, the quantum of saving for each of the actors drops out of a completed table as shown in the savings table below. It demonstrates how Keynes’s “saving equals investment” postulate is arrived at. The saving figures also permit an introduction to sectoral balance analyses, as well as capital flows in a balance of payments context.
Fourthly, from the same table, the three approaches to GDP determination can be obtained. This is shown below.
Finally, the approach is not limited to demonstrating national income determination. It can be applied to other topics in economics, eg the banking system. Try it!