Economic growth can indicate a healthy economy for a nation and possibly lead to a higher standard of living for its citizens. Countries often seek to ascertain how well their economies are performing and if necessary, what measures can be put into place to spur lagging economic growth. Aggregate output and aggregate income are barometers that help a country determine the health of its nation.
Aggregate output is a measure of the total worth of the goods and services created in an economy over the span of a year. This differs significantly from aggregate income, which measures the sum total of income that has been earned by all individuals working within a single economy.
What Aggregate Output Means
In economics, aggregate output is another term for gross domestic product (GDP). It's the total value of goods and services produced in an economy and is usually measured during a fiscal year. GDP represents the output of goods and services at market prices. The term domestic means it's a measurement of output from within a country' borders. Therefore, the measurement inherently excludes net income from abroad. There are two main criticisms of GDP. One is its preoccupation with indiscriminate consumption and production. The second is its exclusion of the lost value of depleted natural resources and unpaid costs of environmental harm while including as a positive factor in its calculations the cost of damage caused by pollution.
Understanding Aggregate Income
Aggregate income refers to the total amount of all income earned in an economy within a given period of time. This basis is one way to estimate, or determine, the gross domestic product. Aggregate income does not factor in the affect of taxes or inflation on the income. Generally, the more income a country earns overall, the more prosperous the country is considered to be. Although GDP itself is measured on a fiscal basis, aggregate income is calculated on a quarterly basis.
Other Bases to Consider
Aggregate income is one of the bases used to measure gross domestic product, but it isn't the only one. There are two others. The expenditure basis measures the amount of money spent within a country over a specified period of time. The output basis measures how many goods and services were sold within a country over a set period of time. Regardless of the basis used to estimate the gross domestic product, all three should produce the same results.
The gross domestic product is concerned with the the economic health of a country based upon production that occurs within its borders. If income from abroad is included, the measurement is no longer referred to as the gross domestic product, but instead is called the gross national product (GNP). Also, when gross domestic product is measured, the deduction of indirect taxes from market prices along with the inclusion of subsidies is called the national dividend, or GDP at factor cost. Net domestic product occurs when the depreciation of the national capital stock is deducted from the GDP.