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macsg06 - 6[21 Measuring National Output and National...

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139 6 [21] 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. B RAIN T EASER : 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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