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ch20lecture - PART 7 GDP and the Standard of Living CHAPTER...

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PART 7 MONITORING THE MACROECONOMY GDP and the Standard of Living CHAPTER 20
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When you have completed your study of this chapter, you will be able to C H A P T E R C H E C K L I S T Define GDP and explain why the value of production, income, and expenditure are the same for an economy. 1 Describe how economic statisticians measure GDP in the United States. Distinguish between nominal GDP and real GDP and define the GDP deflator. 2 3 Explain and describe the limitations of real GDP as a measure of the standard of living. 4
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20.1 GDP, INCOME, AND EXPENDITURE GDP Defined Gross domestic product or GDP The market value of all the final goods and services produced within a country in a given time period. Value Produced Use market prices to value production.
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20.1 GDP, INCOME, AND EXPENDITURE What Produced Final good or service A good or service that is produced for its final user and not as a component of another good or service. Intermediate good or service A good or service that is produced by one firm, bought by another firm, and used as a component of a final good or service. GDP includes only those items that are
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20.1 GDP, INCOME, AND EXPENDITURE Where Produced Within a country When Produced During a given time period.
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20.1 GDP, INCOME, AND EXPENDITURE Circular Flows in the U.S. Economy Consumption expenditure The expenditure by households on consumption goods and services. Investment The purchase of new capital goods (tools, instruments, machines, buildings, and other constructions) and additions to inventories.
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20.1 GDP, INCOME, AND EXPENDITURE Government expenditure on goods and services The expenditure by all levels of government on goods and services. Net exports of goods and services The value of exports of goods and services minus the value of imports of goods and services.
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20.1 GDP, INCOME, AND EXPENDITURE Exports of goods and services Items that firms in in the United States produce and sell to the rest of the world. Imports of goods and services Items that households, firms, and governments in the United States buy from the rest of the world.
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20.1 GDP, INCOME, AND EXPENDITURE Total expenditure is the total amount received by producers of final goods and services. Consumption expenditure: C Investment: I Government expenditure on goods and services: G Net exports: NX Total expenditure = C + I + G + NX
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20.1 GDP, INCOME, AND EXPENDITURE Income Labor earns wages, capital earns interest, land earns rent, and entrepreneurship earns profits.
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20.1 GDP, INCOME, AND EXPENDITURE Expenditure Equals Income Because firms pay out everything they receive as incomes to the factors of production, total expenditure equals total income. That is: Y = C + I + G + NX The value of production equals income equals expenditure.
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20.1 GDP, INCOME, AND EXPENDITURE Figure 20.1 shows the circular flow of income and expenditure.
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20.2 MEASURING U.S. GDP The Expenditure Approach Measures GDP by using data on consumption expenditure, investment, government expenditure on goods and services, and net exports.
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20.2 MEASURING U.S. GDP Expenditures Not in GDP Used Goods
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