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Things That Are Accounted For In the GDP
Tabulating the sales where money goes from hand to hand can be somewhat complicated because both the salesperson and buyer are involved in each one of these transactions. The money that the buyer spends has to be equal to that which the salesperson receives. In other words, the income needs to be the same as the expense.
Consequently, the GDP can be measured by adding all of the expenses or tabulating all the income in the economy. If the calculation is done correctly, both methods give the same value to the GDP.
When thinking about the GDP, you will also need to consider the goods and services that are changes for dollars, or for this matter any other type of money depending on the country you just so happen to live in. Economists make it easier for themselves by saying that all the resources or production factors of a society such as land, work and capital, are property of the homes. The homes could only have one person living in it or several, so think of terms of individuals or families. The companies will either rent or buy the factors of home production and will use it to produce goods and services that at the same time are sold to the homes. This process sets up a circular flow of resources that goes from the homes to the companies and of goods and services that go in the opposite direction.
The flow of resources and goods moves in the contrary way moves in the opposite direction to the payment of dollars. When the companies buy factors of production to the homes, they have to pay them money and that money is an income for the homes. When the homes then buy goods and services from the companies, they pay them with money.
It is very important to bare in mind that the homes are owners of the companies; they do not exist on their own. As a consequence, the money that a company receives when they sell a good or service flows like an income for an individual or group of individuals. The flow of this income needs to be the same as the expenses.