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Principles of Economics- Mankiw (5th) 481

Principles of Economics- Mankiw (5th) 481 - CHAPTER 22 M E...

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CHAPTER 22 MEASURING A NATION’S INCOME 497 drugs. It also excludes most items that are produced and consumed at home and, therefore, never enter the marketplace. Vegetables you buy at the grocery store are part of GDP; vegetables you grow in your garden are not. These exclusions from GDP can at times lead to paradoxical results. For exam- ple, when Karen pays Doug to mow her lawn, that transaction is part of GDP. If Karen were to marry Doug, the situation would change. Even though Doug may continue to mow Karen’s lawn, the value of the mowing is now left out of GDP because Doug’s service is no longer sold in a market. Thus, when Karen and Doug marry, GDP falls. “FINAL . . .” When International Paper makes paper, which Hallmark then uses to make a greeting card, the paper is called an intermediate good, and the card is called a final good. GDP includes only the value of final goods. The reason is that the value of intermediate goods is already included in the prices of the final goods. Adding the
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