Definition of Aggregate Income


The term “aggregate income” is often used in the finance world. Usually, it’s applied to countries. However, you may have trouble finding any figures for a country’s aggregate income. While aggregate income is the term given to a country’s total income, “gross domestic product,” which includes specifications about what income is included and excluded from calculation, is a more commonly used term to describe the same thing.

Basic Definition

Aggregate income is a term that is used to describe the total income of an entire group of people. It is a conceptual term used to define the, “sum total of all incomes in an economy in a given period, usually a year,” according to MSN Encarta.

Common Aggregate

The terms “national income” and “product accounts” are sometimes also used to explain aggregate income. But gross domestic product, or GDP, is by far the most commonly used aggregate income calculation. Quick MBA easily describes the GDP as the, “sums of the income received by all producers in the country.” There are other ways of calculating GDP, such as a country’s total expenditure on goods and services, and the market value of goods and services a nation produces. However, all three calculation methods yield the same results.

Why Aggregates are Important

Aggregate income is a way to measure a country’s economic growth or lack thereof. The idea, in simple terms, is that the more income a country has, the more it produces and the more wealth it has. A country can often raise its overall standard of living by increasing its GDP, or in more conceptual terms, its aggregate income.

When Aggregates Can Deceive

Tallying a nation’s total income doesn’t always provide a true picture of its citizens’ wealth, because aggregate income does not tell you how expensive it is to live in that country, and thus how well people actually can live. That’s why the gross domestic product differentiates between national and real GDP. Nominal GDP is the total sum without accounting for inflation, whereas real GDP accounts for inflation and can thus give you a sense of citizens’ purchasing power, when broken down per capita.

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