chapte7 - Chapter 7 National Economic Accounting I....

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Chapter 7 National Economic Accounting I.Expenditure Approach: measures the values of the goods and services that are bought Income Approach: measures incomes generated in producing the national output Another way of saying this is the expenditure approach adds up prices for all the output in the economy (over a one-year period) while the income approach adds up the costs for all the inputs needed to make the output. Table 7-2 (p.171) demonstrates the equality of the two approaches. All the value of the output is distributed to the various factors of production and nonincome costs. II. Gross Domestic Product (GDP) takes the expenditure approach, adding up values of good bought by C, I, and G, and subtracting the trade deficit (X-M=Xn). GDP is defined as the market value of all final goods and services produced in a year in a given economy. A given economy nearly always just means, “in one country.” A.Final goods and services means that only the price paid when the new production is bought gets counted. Most of the economy’s output goes through stages of production, and changes hands from producer to producer, each one adding some value in the good’s process of becoming final. To add in the values of the good at intermediate steps would be double-counting, because all intermediate values are included in the final price.
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B.Work in progress and unsold inventory at the end of the year represents output for the year, so that must be added in GDP. Also, some of the output bought this year was from last year’s inventory or partially built last year. So last year’s inventory (that gets sold this year) must be subtracted from this year’s inventory (that gets sold next year) and the result is a net inventory figure (could be positive or negative) that you add to GDP. C.C= Personal Consumption Expenditures. Consumers buy three types of goods i. Durable goods: last a long time, like appliances, vehicles, computers, phones ii. Nondurable goods: used up quickly, like food, personal hygiene products, clothing iii. Services: someone does something for you, such as serving food, accounting or tax work, legal work, doctor D.I= Gross Private Domestic Investment i. Investment that only replaces worn-out capital is counted – that is why it is “gross” as opposed to “net” ii. Private means non-government (that would be public) spending iii. Domestic means within the nation’s borders, regardless of the nationality of the owner/ company doing the investment spending. iv. Investment consists of machinery/equipment, business and residential construction, and the net inventory E.G= Government Expenditures includes goods, services, and investment paid for by the government.
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i.The Government makes transfer payments (income security) in the form of welfare, unemployment benefits, and various subsidies to industry such as agriculture. Since these transfers of money are not in return for any good or services purchased, they do not get counted in GDP. F.
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chapte7 - Chapter 7 National Economic Accounting I....

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