Economics Notes2(test2)

Economics Notes2(test2) - C hapter 7: NATIONAL INCOME...

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Chapter 7: NATIONAL INCOME ACCOUNTING: This accounting enables economists and policy makers to : 1) Access the health of the economy by comparing levels of production at regular intervals. 2) Track the long-run course of the economy to see whether it has grown, been constant, or declined. 3) Formulate policies that will safeguard and improve the economic health. Gross Domestic Product (GDP) -defines aggregate output as the dollar amount value of all final goods and services produced within the borders of a given country during a given time period, typically a year. -products produced domestically by a foreign company counts as part of the domestic output. MONETARY MEASURE: -the price a society is willing to pay for a product or service because of the worth of the product to the society. -GDP is a monetary measure. Avoiding Multiple Counting in GDP measure: -The GDP includes only the market value of final goods and ignored intermediate goods altogether. INTERMEDIATE GOODS Goods and services that are purchased for resale or for further processing or manufacturing
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FINAL GOODS Consumption goods that are purchased by their final users MULTIPLE COUNTING Includes the value of the intermediate goods and distorts the value of GDP if included -Can be avoided by measuring and cumulating only the value added at each stage VALUE ADDED -Market value of firm’s output- the value of inputs the firm has bought from others. GDP excludes non production transactions 2 Types of non production transactions: 1)Purely financial transactions 2)Second-hand Sales Financial transactions: -Public transfer payments (Social Security, welfare, veteran’s payments) -Private transfer payments (Money given to others privately as gifts or allowances) -Stock Market transactions excluding payments for services provided by a stock broker. Second-hand Sales: -Sales from person to person contribute nothing to the current production so it is not included in the GDP
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2 Ways of looking at GDP: Expenditure Approach: 70% CONSUMPTION -Consumer durable Goods -Consumer Nondurable goods -Services 15% GROSS PRIVATE INVESTMENT -producer durables Net Investments: -new construction -The addition of capital each year -Change in inventories -Equals gross investment depreciation 20% GOVERNEMNT PURCHASES -5% NET EXPORTS (exports- imports) TRADE DEFICIT Income Approach: 1)Compensation of Employees 2)Rents 3)Interest 4)Proprietor’s Income 5)Corporate Profits 6)Taxes on Output +Input
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7)Net foreign Factor Income (The difference between what Americans earn abroad and what foreigners earn here) 8)Depreciation (a negative factor) 9)Statistical discrepancies GDP (Gross Domestic Product) *Look at the Circular flow Chart on page 136. -
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This note was uploaded on 07/21/2010 for the course ECO 001 taught by Professor Melkonian during the Spring '10 term at Hofstra University.

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Economics Notes2(test2) - C hapter 7: NATIONAL INCOME...

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