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Principles of Economics- Mankiw (5th) 484

Principles of Economics- Mankiw (5th) 484 - 500 PA R T E I...

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500 PART EIGHT THE DATA OF MACROECONOMICS included in other components of GDP. For example, suppose that a household buys a $30,000 car from Volvo, the Swedish carmaker. That transaction increases consumption by $30,000 because car purchases are part of consumer spending. It also reduces net exports by $30,000 because the car is an import. In other words, net exports include goods and services produced abroad (with a minus sign) because these goods and services are included in consumption, investment, and government purchases (with a plus sign). Thus, when a domestic household, firm, or government buys a good or service from abroad, the purchase reduces net exports—but because it also raises consumption, investment, or government pur- chases, it does not affect GDP. The meaning of “government purchases” also requires a bit of clarification. When the government pays the salary of an Army general, that salary is part of government purchases. But what happens when the government pays a Social Security benefit to one of the elderly? Such government spending is called a
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