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Principles of Economics- Mankiw (5th) 493

Principles of Economics- Mankiw (5th) 493 - CHAPTER 22 M E...

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CHAPTER 22 MEASURING A NATION’S INCOME 509 calculated from the ratio of nominal to real GDP— measures the level of prices in the economy. GDP is a good measure of economic well-being because people prefer higher to lower incomes. But it is not a perfect measure of well-being. For example, GDP excludes the value of leisure and the value of a clean environment. Key Concepts microeconomics, p. 494 macroeconomics, p. 494 gross domestic product (GDP), p. 496 consumption, p. 499 investment, p. 499 government purchases, p. 499 net exports, p. 499 nominal GDP, p. 502 real GDP, p. 502 GDP deflator, p. 503 Questions for Review 1. Explain why an economy’s income must equal its expenditure. 2. Which contributes more to GDP—the production of an economy car or the production of a luxury car? Why? 3. A farmer sells wheat to a baker for $2. The baker uses the wheat to make bread, which is sold for $3. What is the total contribution of these transactions to GDP?
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