Cash Flow and Assets

Even though it is possible to use the cash flow or the expenses to measure the GDP, economists prefer to use the cash flow because the governments obligate both individuals as well as the businesses to register even the last cent of income they receive to be able to assess. This government requirement gives us a great deal of information and exact information on the income.

Cash Flow
All of the cash flow of the economy goes towards one of the following categories:

  • The incomes factors of work are salaries.
  • The incomes of factors of land are revenues.
  • The incomes of factors of capital are interests.
  • The incomes of factors of businesses are benefits.

It’s most likely that the first three mentioned in the list above are easy to recognize as the traditional factors of production. Obviously, since you need land, work and capital to do things, they need to be paid for. This is the reason why one part of the income in the economy flows towards these factors. However, in a competitive and dynamic economy, people that are willing to assume business risks and invest in risky technology are also needed. In order for them to do this, they need to get paid, and this is the reason for which part o the income should also flow, in form of benefits, towards the business people that are willing to take on risks. In fact there are many economists that like to consider the business factor as a fourth factor of production, a factor which needs to be paid for in order to achieve that things get produced in a market economy.

Each one of the four types of income constitute a cash flow that recompenses the flow of necessary services in the production such as:

  • The employees receive salaries for the work services they provide.
  • The owners of buildings and lands charge interests to the leaser for the services of the property and the physical structures these have.
  • The companies that obtain the services of capital, such as machinery and computers etc, should pay for them. This pay is considered interest since, for example, the cost of obtaining the services of a capital good that is worth $10000 are the payments of interests that a company must do over the $10000 in order to buy that good.
  • Finally the benefits of the company should go to the business people and the owners of the company, since they are the ones that are taking the risk of the company not doing well or even going bankrupt.

Beginner Money Investing Using the Gross Domestic Product What the Gross Domestic Product Excludes Things That Are Accounted For In the GDP Cash Flow and Assets Assets Following the Funds Goods Are Recorded When They Are Produced, Not When They Are Sold How the GDP Is Increased GDP Equation C stands For Consumption I Stands For Investment G Stands For Government NE - Net Exports