The
next chapter is where the ‘Main Course’ picks back up from its previous
interlude. In this chapter, Smith (now only referring to David) touches on the
subject of measuring the size and health of an economy. Smith mentions that GDP
may essentially be the ‘Gross-value added’ to an economy. Another point that is definitely noteworthy is the
appearance of one of the very few
formulae in this book. Smith uses the formula for GDP C+I+G+X-M =GDP or AD as an aid to help describe how all actions in
an economy will link back to the GDP via its different components: consumer
spending (C), investment by firms (I), government spending (G), exports (X),
and imports (M) - if you’re studying A-level Economics, this will all come up
in the macroeconomics section. In this section, there is also the beginnings of
Keynesian economics’ application to society and Adam Smith’s theory playing a
role with the use of incentives in society to effect changes in spending (to
correct market failure etc). He then goes on to discuss the affects of not
including the value of housework in the calculation of AD- in 2002, the UK’s
Office for National Statistics estimated that £700 billion (That’s roughly the
size of Switzerland’s GDP).Hey guys, don't forget to subscribe and ask any questions in the comments section below!
K
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