National income accounting

For economists, all new output that are not consumed are capitals

GDP is monetary measure. To avoid multiple counting, GDP includes only the market value of final goods and ignores intermediate goods altogether. The reason is that the value of final goods already includes the value of all the intermediate goods that were used in producing them.

Nonproduction transactions are excluded from the calculation of GDP.
Two types of nonproduction transactions:
(1) financial transactions that produce final output but if the transactions consist of service fee, that part will be included.
(2) second-hand sales: selling a second-hand commodity to your friend does not generate any current production.

Two ways to look at GDP.
(1) View GDP as the sum of all the money spent in buying it: output/expenditure approach
(2) view GDP in terms of the income derived or created from producing it: income approach


Expenditure approach = personal consumption expenditure (C) + gross private domestic investment (Ig)