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lecture notes 4.11 (fri)

# lecture notes 4.11 (fri) - Three ways to calculate GDP I...

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Three ways to calculate GDP I. Final Goods approach: Ex. 1. Steel company (Firm 1) Revenues from sales  \$100M Expenses \$ 80M Wages \$80 Profit \$20 Ex. 2. Car company (Firm 2) Revenue from sales \$200 Expenses \$170 Wages \$ 70 Steel Purchases \$100 Profit \$30 By final goods approach, GDP = \$200 (We don’t include revenue of the steel company as steel is an intermediate product) BEA (bureau of economic analysis) divides it’s statistics on GDP into 4 categories. 1) Goods consumed by individuals   aggregate consumption (C) 2) Goods used by firms to build machines, buildings, etc.   Aggregate investments (I) 3) Government spending/ purchases (G) 4) Exports   goods that go abroad (X) 5) Imports   goods that are imported into the country (M) GDP = C + I+G+X-M X-M= net exports 2003:  C = 7609.8 I = 1596.6 G = 2041.4 X= 1019.8 M = 1523 Net = 107446 II. Value added approach

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