Chapter 5 - Chapter 5 Gross Domestic Output(GDP A nations...

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Chapter 5 Gross Domestic Output (GDP): A nation’s gross domestic product (GDP) is the total value of all final goods and services produced for the marketplace during a given period within the nation’s borders. Using dollar values has two important advantages. 1. It gives us a common unite of measurement for every different things 2. It ensures that a good that uses more resources to produce will count more in GDP that a good that uses fewer resources. Problems: 1. If prices rise, then GDP will rise, even if we are not actually producing more 2. Cant track the change in output over time 3. The value of the dollar – the purchasing power – is itself changing GDP must be adjusted to take away the effects of inflation Intermediate goods - Goods used up in the process of producing something else Final goods - A product sold to its final user To avoid overcounting intermediate products when measuring GDP, we add up the value of final goods and services only. The value of all intermediate products is automatically included in the value of the final products they used to create GDP counts only things that are produced. Does not count: land, stocks, bonds GDP does not include all final goods and services produced in the economy. It includes only the ones produced for the marketplace, with the intention of being sold Second hand goods are not counted in GDP Expenditure approach: GDP = C + I + G + NX - Consumption goods and services (C), purchased by households - Making up about 70% of total production - Newly constructed homes are part of GDP as investment, rather than
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Chapter 5 - Chapter 5 Gross Domestic Output(GDP A nations...

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