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# Ch5 - Chapter 5 Measuring a Nation's Income Chapter 5 is...

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Chapter 5: Measuring a Nation’s Income Chapter 5 is the first chapter in the macroeconomic section of the text. It is the first of a two-chapter sequence that introduces students to two vital statistics that economists use to monitor the macroeconomy— GDP and the consumer price index. Chapter 5 develops how economists measure production and income in the macroeconomy. The following chapter, Chapter 6, develops how economists measure the level of prices in the macroeconomy. Taken together, Chapter 5 concentrates on the quantity of output in the macroeconomy while Chapter 6 concentrates on the price of output in the macroeconomy. The purpose of this chapter is to provide students with an understanding of the measurement and the use of gross domestic product (GDP). GDP is the single most important measure of the health of the macroeconomy. Indeed, it is the most widely reported statistic in every developed economy. By the end of this chapter, students should understand: why an economy’s total income equals its total expenditure. how gross domestic product (GDP) is defined and calculated. the breakdown of GDP into its four major components. the distinction between real GDP and nominal GDP. whether GDP is a good measure of economic well-being. Practice Question 1, Page 33, Workbook Use the data below to answer questions a-f. Provide a formula for each aggregate you calculate. constant \$ ‘000s Consumption (C) 400 Government Purchases (G) 350 Gross Private Investment (I) 150 Exports (X) 150 Imports (M) 100 Depreciation 50 Corporate profits 45 Answers for parts a-d given in \$’000s. a. What is the value of Net Investment (NI)? NI = I-depreciation = 150-50 = 100 b. What is the value of Net Exports (NX)? NX = X-M = 150-100 = 50 c. Calculate the value of real GDP via the Expenditure approach. RGDP = C + I + G + NX = 400 + 150 +350 +50 = 950 d. Calculate the value of real Net Domestic Product R(NDP). RNDP =RGDP-depreciation = 950-50=900

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Ch5 - Chapter 5 Measuring a Nation's Income Chapter 5 is...

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