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Unformatted text preview: 1 1 Chapter 5: Production, Income and Employment We will take our first look at production and employment, focusing on two key variables: Gross Domestic Product and Unemployment Rate The nation s Gross Domestic Product Total value of all final goods and services produced for the marketplace during a given period, within the nations borders 2 Production and Gross Domestic Product, GDP: A Definition The total value Approach of GDP is to add up dollar value of every good or servicethe number of dollars each product is sold for Advantages Also creates a problem If prices rise, then GDP will rise, even if we are not actually producing more GDP must be adjusted to take away the effects of inflation of all final When measuring production, we do not count every good or service produced in the economy Only those that are sold to their final users Avoids over-counting intermediate products when measuring GDP Value of all intermediate products is automatically included in value of final products they are used to create 3 Production and Gross Domestic Product, GDP: A Definition goods and services We all know a good when we see one Final services count in GDP in the same way as final goods produced In order to contribute to GDP, something must be produced Buying land or financial assets (stocks and bonds) are not counted in GDP During the period being considered 4 Figure 1: Stages of Production $1.00 (Wood Chips) Lumber Mill $1.50 (Raw Paper) Paper Mill $2.25 (Notebook Paper) Office Supplies Manufacturer $3.50 (Notebook Paper) Wholesaler $5.00 (Notebook Paper) Retailer 2 5 Production and Gross Domestic Product, GDP: A Definition for the marketplace GDP does not include all final goods and services produced in the economy Includes only the ones produced for the marketplace that is, with the intention of being sold during a given period GDP measures production during some specific period of time Only goods produced during that period are counted GDP is actually measured for each quarter, and then reported as an annual rate for the quarter Once the fourth-quarter figures are in, government also reports official GDP figure for the entire year 6 Production and Gross Domestic Product, GDP: A Definition within the nations borders U.S. GDP measures output produced within U.S. borders Regardless of whether it was produced by Americans Americans abroad are not counted However, foreigners producing goods or services within the country are 7 The Expenditure Approach to GDP Expenditure components of GDP Consumption goods and services (C)purchased by households; sum of expenditures on durable goods, nondurable goods, and services....
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