Total Spending, Income and Output
Economics (Year 11) - Introduction to Macroeconomics
What is total spending, income and output?
Total spending, total income and total output are all ways of measuring economic activity.
Data produced from these aggregate (total) measures can be used to:
Assess the economic performance of a nation
Compare international economies
Produce models and assess trends
Allow businesses and economists to make predictions
Allow policy makers, like the government and Reserve Bank of Australia, to manage the economy (though the use of Monetary and fiscal policies)
Allows households to plan budgets
Total Spending is also known as 'total expenditure,' in exams these terms can be used interchangeably so be sure to recognise both as the same term. It refers to the total combined expenditure/spending in all forms in the economy over a period of time.
Total Income is a concept that is measured by adding up all incomes earned in the economy as a result of economic activity over a given period of time (usually a quarter or a year.)
Total output is a concept that is calculated by adding up the final output of firms over a period of time. Another way of looking at it, total output can also be calculated by adding up all the extra value earned by firms in that period of time.
It is important to understand how total spending, total income and total output interconnect within the economy. Their relationship can demonstrate expansions and contractions of economic activity and can help explain the changes that influence consumers spending, firms investment and government spending. As shown by the table, the effects of reduced spending have a 'domino' effect on the performance of the economy.