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Published byGervais Thompson Modified over 9 years ago
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Measuring Domestic Output, National Income and the Price Level Krugman Section 3 Modules 10 and 11
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Assessing the Economy National income accounts serve a purpose just as income statements do for a business Compare conditions with other countries Provides a basis for public policies to improve economic performance
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Gross Domestic Product (GDP) GDP = the total market value of all final goods and services produced within a country in one year Measured in quarters (every 3 months) –1 st = January - March –2 nd = April - June –3 rd = July – September –4 th = October - December
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GDP Includes only final goods = g & s that are purchased for final use by the consumer Does not include intermediate goods = g & s that are resold or go on for further processing or manufacturing –This avoids multiple counting Is the value of what has been produced, not what was actually sold
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GDP Excludes Nonproduction Transactions Existing assets or property that is sold or transferred, including used items, is NOT counted Public or private transfer payments --public = SS or welfare payments --private = student allowance or alimony --sale of stocks and bonds --broker services rendered ARE counted
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More Nonproduction Transactions Secondhand sales Unreported business activities done in cash (ie unreported tips) Illegal activities “Non-market” activities like volunteering or family work US corporation’s production in overseas plants
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2 ways to look at GDP Expenditures Approach GDP has 4 components GDP = C + I g + G + Xn C = Personal Consumption –durable & nondurable finished g & s (but not houses)
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Expenditures Approach I g = Gross Private Domestic Investment (Gross Investment) –Purchases of machinery, equipment & tools –Factory equipment maintenance –All construction (including houses) –Unsold inventory of products
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Expenditures Approach G = Government Spending –Government purchase of resources (mainly labor) –Again, it excludes transfer payments like SS
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Expenditures Approach Xn = Net Exports (exports – imports) --All spending on g & s produced in the US must be included in the GDP, whether the purchase is made here or abroad --For decades, Xn has been a negative (= trade deficit)
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Expenditures Approach C + I g + G + Xn = GDP
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Income Approach W + R + I + P –Wages –Rents received –Interest earned –Profits
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