21 - A. Gross Domestic Product: The Yardstick of an...

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A. Gross Domestic Product: The Yardstick of an Economy’s Performance a. GDP - most comprehensive measure of nation’s total output of goods/services i. GDP = consumption (C) + gross investment (I) + government purchases (G) + net exports (X) ii. Measured as flow of product or sum of earnings 1. flow of products only final goods (not intermediate) consumption sum = GDP 2. earnings costs of businesses/wages/rents/profits = GDP (wage+interest+rent+profit) 3. avoid “double counting” of intermediate goods by only calculating value added = difference btwn firm sales and purchases of material/services from other firms b. business accounts most important source of data i. source of numerical record of all flow B. Details of the National Account a. Prices change over time = difficult measuring rod of GDP i. RGDP = index of volume of good/service (price changes removed) ii. Growth in the price of GDP (GDP Deflator) = growth NGDP / price index (base) iii. NGDP / GDP deflator = RGDP
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21 - A. Gross Domestic Product: The Yardstick of an...

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