How are the two different approaches to GDP equal?

How are the two different approaches to GDP equal?

by Evan Weisheit -
Number of replies: 1

If one way of calculating GDP looks at the expenditures of people and the other looks at income, how does the income approach not lead to a higher number than the expenditures, since people do not spend every penny they make? They save some money and, sometimes, they don't even put that money into a bank or invest it!

In reply to Evan Weisheit

Re: How are the two different approaches to GDP equal?

by Danny Weaver -
If the money is saved in a bank or invested, it is loaned out then spent - tracked in the GDP figures.

If the money is saved in a mattress, this would effectively decrease the money supply, lowering the price level (if people did this en masse) where producers would eventually renegotiate prices at this lower price level and push the GDP back out to the long run.