Two ways to measure a nation's wealth: spending versus income

GDP is more than a single number. This video explores the two primary methods economists use to dissect a country's economic activity: tracking what is spent and measuring what is earned.

To understand an economy, analysts look at the ledger from two directions. The national spending approach categorizes GDP into three distinct buckets: consumption goods, investment goods, and government purchases. This method requires careful accounting to ensure that government expenditures are correctly classified to avoid the error of double counting.

Alternatively, the factor income approach views GDP as the aggregate of all earnings within the economy. This includes wages paid to employees, rental income, interest payments, and corporate profits. By comparing these two perspectives—often referred to as GDP and GDI—economists can gain a clearer picture of economic health, particularly during periods of downturn, using data tools like the Federal Reserve's FRED platform.

Source: Splitting GDP