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How profits grow

How profits grow
August 4, 2014
How profits grow

Here’s a framework which I find helpful for thinking about such questions. It’s a simple rearrangement of national accounts identities. GDP is equal to the sum of incomes: wages (W), profits (P), taxes (T) and other incomes such as those of the self-employed (O). It is also equal to the sum of spending: consumer spending (C ), government spending (G), investment (I) and net exports (NX). Rearranging these gives us an expression which tells us the counterparts of changes in profits. It’s:

P = (C – W) + I + (G – T) + NX – O.

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