case_macro08_ssg_06 - 6 [19] Measuring National Output and...

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135 6 [19] Measuring National Output and National Income C hapter objectives : 1. Define gross domestic product (GDP) and its components. Detail those transactions that are excluded from GDP calculations. Distinguish between GDP and GNP. 2. Use the expenditure approach to calculate GDP. Distinguish between gross investment and net investment. Discuss the meaning of depreciation and the problems of measuring it. Define the three categories of personal consumption expenditures. 3. Outline the procedure and rationale for determining GDP through the income approach. Distinguish the various national income accounts. 4. Distinguish between real GDP and nominal GDP and explain why real GDP is the preferred measure of production. Discuss the weaknesses of a fixed-weight index to measure real GDP. Discuss how the GDP deflator is constructed. 5. Outline the shortcomings of GDP and per capita GDP as a measure of social well-being. Most students find this chapter a bit of a chore. Memorize the important definitions: GDP, the components of the expenditure approach, depreciation, saving (nonconsumption), and disposable personal income. BRAIN TEASER: This chapter explores how economists measure an economy’s production, using gross domestic product (GDP), gross national product (GNP), and other aggregates. Usually, the difference between GDP and GNP (net factor payments to the rest of the world) are minimal—for the United States, about one-fifth of 1% of GDP. Consider though, Lesotho, a tiny nation with a poor domestic economy, which is entirely surrounded by wealthy South Africa. Most Lesothans work in South Africa’s mines and industries. Which is larger, Lesotho’s GDP or its GNP?
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136 Study Guide to Principles of Macroeconomics OBJECTIVE 1: Define gross domestic product (GDP) and its components. Detail those transactions that are excluded from GDP calculations. Distinguish between GDP and GNP. There is a family of national income accounts, but the key measure of current domestic economic activity is gross domestic product . GDP is the market value of all final goods and services produced within the economy. Second-hand sales, sales of intermediate goods, public and private transfers payments, and the value of financial transactions are all excluded. (page 113 [417]) ±±± LEARNING TIP: There’s no substitute for learning the rationale behind the concept of GDP. Productive economic activity within the economy results in new final goods and services. Sales of final goods plus (or minus) change in inventories will capture this. Compare this idea of new productive activity with the items that are excluded from GDP. Consider the logic behind the exclusion of some items from GDP calculations, such as transfer payments (public and private), intermediate goods, second-hand sales, and financial transactions. We’re measuring current production of goods and services. Why are these categories excluded? Moonlighting, “do it yourself” activities, barter, and illegal activities don’t show up
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This note was uploaded on 03/18/2008 for the course ECON 331 taught by Professor Q during the Spring '08 term at University of Texas at Austin.

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case_macro08_ssg_06 - 6 [19] Measuring National Output and...

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