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# chapteer2 - CHAPTER 5 National-Income Accounting Measures...

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Unformatted text preview: CHAPTER 5 National-Income Accounting Measures of Output National-income accounting refers to the measurement of aggregate economic activity, particularly national income and its components. 1. GDP Gross domestic product ( GDP ) is the total dollar value of final output produced within a nation’s borders in a given time period. Need a common unit to compare output activity. Uses prices as a measure of value for calculating total output. LO1 The Measurement of Output LO1 The Measurement of Output LO1 2. GNP Gross National Product ( GNP ) refers to output produced by American-owned factors regardless of location. LO1 GDP Versus GNP GDP refers to output produced within America’s borders. GDP is geographically focused, regardless of whose factors of production are used to produce it. The geographic focus of GDP facilitates international comparisons of economic activity. LO1 3. GDP per Capita GDP per capita is total GDP divided by total population–average GDP. GDP per capita is commonly used as a measure of a country’s standard of living. Only a statistical average – does not measure distribution. Measurement Problems The methods of calculating GDP create a few problems. Nonmarket activities Unreported income Non-Market Activities GDP measures exclude most goods and services produced that are not sold in the market. Exclusion of non-market activities causes problems when comparing living standards over time or between countries. LO1 Unreported Income The GDP statistics fail to capture market activities that are not reported to tax or census authorities. The underground economy is motivated by tax avoidance or to conceal illegal activities. LO1 Value Added Not all market transactions are necessarily included in GDP: double-counting. The production of most goods and services involves a series of stages. To accurately measure GDP we must distinguish intermediate goods from final goods....
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chapteer2 - CHAPTER 5 National-Income Accounting Measures...

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