GDP is a Flow Concept - GDP is a flow concept, the amount of total final output a country produces per year - Wealth accounts are a balance sheet of an economy’s assets and liabilities, and it is a stock Concept - Real wealth is the value of the productive capacity of the assets of an economy measured by The goods and services it can produce now and in the future. - Nominal wealth is the value of those assets measured at current market prices GDP Measures Final Output - GDP does not measure total transactions in the economy - It counts final output, but not intermediate goods - Final output is goods and services purchased for final use - Intermediate products are used as an input in the production of some other Product - Counting the sale of both final and intermediate goods would result in double counting Two Ways of Eliminating Double Counting - Calculate only final output - A firm would report how much it sold to consumer and how much it sold to producers - Follow the value-added approach - Value added is the increase in value that a firm contributes to a product or service - It is calculated by subtracting intermediate goods from the value of its sales