Ch05-macro - Chapter 5 Measuring GDP and Economic Growth...

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Chapter 5: Measuring GDP and Economic Growth Objectives: Define GDP and use the circular flow model to explain why GDP equals aggregate expenditure and aggregate income Explain the two methods used by the Bureau of Economic Analysis to measure U.S. GDP Explain how the Bureau of Economic Analysis measures real GDP and the GDP deflator to separate economic growth from inflation Explain the uses and limitations of real GDP
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Gross Domestic Product GDP Defined GDP or gross domestic product is the market value of all final goods and services produced in a country in a given time period. This definition has four parts: Market value Final goods and services Produced within a country In a given time period
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Gross Domestic Product Market Value GDP is a market value—goods and services are valued at their market prices. To add apples and oranges, computers and popcorn, we add the market values so we have a total value of output in dollars.
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Gross Domestic Product Final Goods and Services GDP is the value of the final goods and services produced. A final good (or service) is an item bought by its final user during a specified time period. A final good contrasts with an intermediate good , which is an item that is produced by one firm, and used by another firm as a component of a final good or service. Excluding intermediate goods and services avoids double counting. Clothes? Tires?
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Gross Domestic Product Produced Within a Country GDP measures production within a country—domestic production. Sneakers sold by Nike Toyotas made in Georgetown, KY In a Given Time Period GDP measures production during a specific time period, normally a year or a quarter of a year.
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Gross Domestic Product Financial Transactions Excluded Public Transfer Payments (e.g., social security payments) Private Transfer Payments Stock (and Bond) Market Transactions Second Hand Sales Excluded Homes, cars, etc.
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Two Approaches to GDP $ Produced ≈ $ Income ≈ $ Expenditure Income Approach Wages (including proprietors’ income) Rental Incomes Interest Incomes Profits Expenditure Approach The Sum of the Money Spent to Buy the Output
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Expenditure Approach Income Approach G D P = = + Consumption by Households Investment by Businesses Government Purchases Exports Minus Imports + + + + + Wages Rents Interest Profits Statistical Adjustments +
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Expenditure Approach Personal Consumption Expenditures [C] Durable Consumer Goods Nondurable Consumer Goods Consumer Expenditures for Services
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Expenditure Approach
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January 1 Year’s GDP December 31 Consumption, Gov. Spending & Net Exports Depreciation Net Investment Gross Investment Stock of Capital Increased Stock of Capital Gross Investment Depreciation Net Investment - =
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Expenditure Approach Government Purchases [G] Expenditures for Goods and Services Expenditures for Social Capital Does not include Transfer Payments
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The Income Approach Compensation of Employees Rents Interest Proprietor’s Income Corporate Profits
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