Thursday, September 20, 2012

That's Final!

"Final spending" is a technical term. "Final" as opposed to "intermediate" spending. "Intermediate" spending is separated from "final" to avoid double-counting income.

If you go to the Mall and buy something for $10, that $10 is final spending. But when the store bought the thing, and when the shipper shipped it, and when the packer packed it, and when the manufacturer manufactured it, and when the engineer engineered it, and when the entrepreneur thought it up, none of the spending on it they did then was final spending.

Actually, each of them spent something on it, and each of them made something on it. If you take what they made on it, and subtract out what they spent on it, what's left is their income. And if you take all their income for the work on the thing you bought, and add up all that income, you get $10 of income. Exactly the same as the $10 you spent, the "final" spending.

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