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Unformatted text preview: For Super Duper, profits are sales minus the value of food (an intermediate good) and minus the factor payments. Value added is simply sales for Specific Motors and the Farmers. Value added for Super Duper is sales minus the value of food. Clearly, adding value added across the industries will also produce the same value of GDP. 3. G does not include transfer payments (e.g., unemployment insurance, Medicare). 4. An increase in P reduces real wealth, which tends to reduce consumption, and therefore to reduce Y (from the demand side of the economy). Hence, as P increases Y falls, so the AD curve slopes down. Note that an increase in P leads to a decrease in real wealth because some wealth has a fixed nominal value (i.e., makes fixed nominal payments in the future.)...
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This note was uploaded on 02/20/2008 for the course ECON 205 taught by Professor Kamrany during the Fall '07 term at USC.
- Fall '07