CH7TESTS - Aggregate accounting is a set of rules and...

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Aggregate accounting is a set of rules and definitions for measuring activity in the aggregate economy. GDP is the total market value of all final goods produced in an economy in one year. It's a flow, not a stock, measure of market activity. GDP is divided up into four types of expenditures: GDP = Consumption + Investment + Government spending + Net exports Intermediate goods can be eliminated from GDP in two ways: 1. By measuring only final sales. 2. By measuring only value added. Net domestic product is GDP less depreciation. NDP represents output available for purchase because production used to replace worn out plant and equipment (depreciation) has been subtracted. GDP describes the economic output produced within the physical borders of an economy, while GNP describes the economic output produced by the citizens of a country. Aggregate income = Compensation to employees + Rent + Interest + Profit. Aggregate income equals aggregate production because whenever a good is produced somebody receives income for producing it. Profit is key to that equality. Because GDP measures only market activities, GDP can be a poor measure of relative living standards among countries. To compare income over time, we must adjust for price-level changes. After adjusting for inflation, nominal measures are changed to "real" measures. % change in real GDP = % change in nominal GDP - Inflation
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This note was uploaded on 04/24/2010 for the course ECON 12123 taught by Professor Donald during the Spring '10 term at Johnson County Community College.

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CH7TESTS - Aggregate accounting is a set of rules and...

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