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Unformatted text preview: CHAPTER 7: GDP: Measuring Total Production and Income Business cycle, Expansion, Recession, Economic growth, Inflation rate. T HE M EASUREMENT OF G ROSS D OMESTIC P RODUCT GROSS DOMESTIC PRODUCT (GDP): Tries to be as comprehensive as possible. LEGAL GOODS ONLY. Production is measured in value or dollar terms and not in quantities. Final goods only to avoid DOUBLE COUNTING . Solve 1.7, pg 234 Produced must be within the given time Within a country The Components of GDP CONSUMPTION: Spending on services: Non-durable goods: Durable goods INVESTMENT: Business fixed investment: Residential Investment Changes in business inventories. GOV PURCHASES: Transfer payments not included NET EXPORTS: NX = Exports - Imports Y=C+I+G+NX This is expenditure method by adding together all expenditures on final goods and services. Solve 1.9, pg 234 Measuring GDP by the Value-Added Method e.g. pg 221 from book Production and Income The sum of wages, rent, interest and profits is total income received by households and this is the...
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