It was mentioned (in part 2) that a currency-issuing government issues its currency in the act of spending. An implication of this is that a currency-issuing government does not need income in order to spend. We have also noted (in…
We understand that, as a rule, total spending must equal total income (this was explained in part 4 of the series). But this raises a question. Is it spending that determines income or, instead, income that determines spending?
In part 7, we arrived at a fundamental National Accounting identity: GDP = Total Output = Total Income = Total Spending This identity suggests various ways of measuring GDP.
A prominent flow measure for the economy as a whole is Gross Domestic Product (GDP). This is a measure of the total output produced within the domestic economy over a year.
The economist Michal Kalecki once joked that economics is the science of confusing stocks and flows. These two concepts are important, but easy to mix up.
The rule that total spending equals total income is very important, but only true for the economy as a whole. It is not true for individual households, businesses or sectors of the economy. Here, we consider a household.
We saw in parts 2 and 3 that funds initially enter the economy through either government spending or bank lending. In the future, we will take a closer look at these activities. For now, it is enough to understand that…
It was seen in parts 1 and 2 that government, as our collective agent, is able to use its currency to attract some workers and resources to the public sector. This enables it to carry out important functions. One of…
For government to carry out its functions, it needs to employ some people and obtain various resources. Most national governments coordinate the division of resources between public and private use through the operation of a currency that they themselves issue.…
Many activities require cooperation at the society-wide level. As a community, we need to agree upon a set of rules and regulations, and arrange for their supervision and enforcement. Questions that arise include:
