Ch05 - CHAPTER 5 Measuring GDP and Economic Growth After...

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Measuring GDP and Economic Growth CHAPTER 5
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After studying this chapter you will be able to 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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An Economic Barometer What exactly is GDP? How do we use GDP to tell us whether our economy is in a recession or how rapidly our economy is expanding? How do we take the effects of inflation out of GDP to reveal the rate of growth of our economic well-being? And how to we compare economic well-being across countries?
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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, bought by another firm, and used as a component of a final good or service. Excluding intermediate goods and services avoids double counting.
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Gross Domestic Product Produced Within a Country GDP measures production within a country—domestic production. 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 GDP and the Circular Flow of Expenditure and Income GDP measures the value of production, which also equals total expenditure on final goods and total income. The equality of income and output shows the link between productivity and living standards. The circular flow diagram in Fig. 5.1 illustrates the equality of income, expenditure, and the value of production.
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Gross Domestic Product The circular flow diagram shows the transactions among households, firms, governments, and the rest of the world.
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Gross Domestic Product These transactions take place in factor markets, goods markets, and financial markets.
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Gross Domestic Product Firms hire factors of production from households. The blue flow, Y , shows total income paid by firms to households.
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Gross Domestic Product Households buy consumer goods and services. The red flow, C , shows consumption expenditure.
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Gross Domestic Product Households save, S , and pay net taxes, T . Firms borrow some of what households save to finance their investment.
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Gross Domestic Product Firms buy capital goods from other firms. The red flow I represents this investment by firms.
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Ch05 - CHAPTER 5 Measuring GDP and Economic Growth After...

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