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GAUGING ECONOMIC PERFORMANCE UNDER CHANGING TERMS OF TRADE: REAL GROSS DOMESTIC INCOME OR REAL GROSS DOMESTIC PRODUCT?
Author(s) -
COLEMAN WILLIAM
Publication year - 2008
Publication title -
economic papers: a journal of applied economics and policy
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.245
H-Index - 19
eISSN - 1759-3441
pISSN - 0812-0439
DOI - 10.1111/j.1759-3441.2008.tb01047.x
Subject(s) - gross domestic income , gross domestic product , economics , gross output , real gross domestic product , economic welfare , terms of trade , welfare , small open economy , product (mathematics) , open economy , international economics , macroeconomics , monetary economics , gross income , production (economics) , exchange rate , market economy , mathematics , geometry , tax reform , state income tax
The paper presents a simple theoretical case for the superiority of the notion of Real Gross Domestic Income to Gross Domestic Product. It is shown that, in a multi‐period version of the familiar neoclassical model of a small, open economy, a temporary improvement in its terms of trade will increase welfare and RGDI, and produce a trade surplus in current prices; but will decrease real GDP, on account of it creating a trade deficit at constant prices.