Basic Economics

Economics is not a science, but the scientific method is of some use. One of those uses is to put the various factors in the economy into an understandable relationship. Once such relationship is stated in the Keynesian Formula that consists of the following make-up:

Consumption + Investment + Government Spending + Exports - Imports = Gross Domestic Product (C+I+G+X-M= GDP or Y)

Consumption is all of the purchases of Goods and Services. Investment is all the money that is placed in stocks and savings. Government Spending is all purchases by the government, and does not include "transfers". Exports less Imports means all that we sell outside of the US less that which we purchase outside the US.

This explains half of the economy. The spending part.

Gross Domestic Product is the same as income "Y". D = Y - T + t, where "D" is disposable income. "T" stand for taxes and "t" stands for transfers. So disposable income is equal to Income less Taxes plus transfers.



The two sides of economy look something like a plumbing system.