Macro Study Guide - Macro Study Guide Measuring a nations...

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Chapter 14 / Exercise 4
Calculus
Stewart
Expert Verified
Macro Study Guide: Measuring a nation’s income (Chapter 10) Gross Domestic Product (GDP):the market value of all final goods and services produced within a country in a given period of timeGross National Product (GNP): the production of the citizensof a certain countryGross Domestic Income (GDI):households and firms will receive expenditures in form of wages, profits, interest and rent at some pointGNP equation:GDP of country + income earned by its citizens located abroad- income of non-residents located in that countryY= C + I + G + NXC= Personal consumption Expenditure (households)I= Gross private domestic investment, goods that will be used in future to produce more goods (mainlyfrom firms)G= gov’t spending at both FED/STATE levels *not incuding social security “SS” or unemploymentinsurance benefitsNX= net exports= EXPORTS- IMPORTS= value of exported g&s- value of imported g&sAsset:piece of capital that is used to produce a flow of housing servicesNotes: Production within in a country’s borders (GDP)Enterprise owned by someone outside the country (GDP but not GNP) Of the 3 most significant GDP components, Investment “I” has been most volatile b/c consumption smoothing, role of housing, and role of inventoriesHousingHouse is an ASSETTenant rents house/apt. = consumer BUYING housing services Housing related rent enters “C” Person buys newly constructed house= both producer & consumerProducer: made an investment “I” (purchase of house) that will provide future housing services, Housing enters “I” Consumer: buyer of service, valued at market rental rate for house. Think of theperson as her own landlord and rents it to herself, Housing enters “C”Not a durable goodProduction equation:Production = Expenditure = IncomeNotes:
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Calculus
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Chapter 14 / Exercise 4
Calculus
Stewart
Expert Verified
Recall circular flow of diagram (nothing gets lost, either the goods and services are expenditure or someone’s income) GDP counts for what is produced (eventually bought/sold) and what is also the expenditure (Production = Expenditure)Every dollar exiting the pocket of a buyer is a dollar going into a pocket of a seller (Expenditure = Income)Inventories and Savings and the financial market are different!!Inventories:produced goods held in storage in anticipation of later salesNotes: It is considered from the NIPA POV, as if it is buying those goods from itself (hence, firm is investing)Goods held in inventories are counted for the year PRODUCED, not sold!!Value added (VA):the increase in the value of goods/services as a result of the production processVA= value of final g&s sold – value of intermediate g&s bought3 methods to measuring GDP1.The expenditure approach (measures GDP) a.Adds spending on g&s from households, firms, gov’t, and foreigners (counted in GDP, not GNP)2.The income approach (measures GDI)a.Adds all income that is generated FROM and IN the production process3.The value added approach (measures… value added “VA”)a.Adds value of production from all different sectors and industries in the economySteps of Approaches to measuring GDP1.Expenditure approach

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