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Forgive me if this is a naïve or redundant question, I'm about 24h into my study of economics--but I've been trying to research this question and can't figure it out. Why does the national spending approach to GDP yield different results from the factor income GDI approach? For example, if we measure a transaction in which you, a domestic employer, employ me, a domestic employee, isn't it a trivial issue of grammar whether we measure how much you pay me or how much I am paid by you? Are wages, rent, interest, and profit, somehow more practical to measure from the perspectives of employers, landlords, banks, and companies than from the perspective of the spender? Can any useful conclusions be drawn from the difference between GDI and GDP? Hopefully if I'm barking up the wrong tree someone can point me in the right direction. Thank you!

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There are differences between the two due to measurement error and other sampling issues. Theoretically they should be equal, but we are not able to measure either output or income with infinite accuracy. In addition, there are other measuring problems.

This issue is addressed in great detail in the Bureau of Economic Analysis (BEA) explainer here:

In national economic accounting, GDP and GDI are conceptually equal. GDP measures overall economic activity by final expenditures, and GDI measures it by the incomes generated from producing GDP. In practice, GDP and GDI differ because they are constructed using different sources of information. The different source data produce different results for a number of reasons, including sampling errors, coverage differences, and timing differences with respect to when expenditures and incomes are recorded. The overall difference between GDP and GDI is known as the statistical discrepancy

For even more information about this you can have look at the Grimm 2007.

Are wages, rent, interest, and profit, somehow more practical to measure from the perspectives of employers, landlords, banks, and companies than from the perspective of the spender?

Not in general, although it might vary place by place. Measuring income can be much more difficult than spending in some places. It depends on what country we are talking about and what records are used, however typically any discrepancy between GDP and GDI is minimal (rarely larger than few percentage points).

Can any useful conclusions be drawn from the difference between GDI and GDP?

Generally no beside the useful conclusion that we still did not achieved perfect precision in measuring output. Once GDP = GDI it would indicate we measured them precisely.

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  • $\begingroup$ Thank you, that's very helpful. Good resource to know about. $\endgroup$ Aug 8 at 20:23

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