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2 931579 gross domestic product the primary measure

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Unformatted text preview: n 2001 Salary1931 Price level in 1931 1931 salary*(cpi of 2001/cpi of 1931) 177 $80,000 15.2 $931,579 Gross Domestic Product • The primary measure of an economy’s performance. • Total market value of all final goods and services produced in a given year. • The value of the final goods already includes the value of the intermediate goods, so including intermediate and final goods in GDP would be double-counting. *it is used because it is easy, it is well correlated to other human trends... ie higher rate of literacy means a higher GDP *goods are either final or intermediate, final is the end product like orange juice, intermediate is the good that goes *GDP=revenue=price*quantity into the final product like oranges *GDP is only stuff that is produced in that current year Final and Intermediate Goods • Final Goods and Services – Are not used as inputs into the production of another good or service – Are bought by their final users • Intermediate goods – Are used as inputs into the production of another good or service – Examples • Intermediate goods – windshields, gearboxes, batteries • Intermediate services – banking and insurance services bought by a car producer • How to tell – Look at who buys it and for what purpose – Example: electric power • Intermediate when bought by car producer • Final when bought for your home What GDP Omits • Certain non-market goods and services • Underground activities, both legal and illegal • Sales of used goods • Financial transactions • Government transfer payments. • Leisure • Not adjusted for “bads” bads are goods that the buyer didnt like • Transfer Payment: a payment to a person that is not made in return for goods and services currently supplies. Methods for calculating GDP tested in depth on the test • Expenditure Approach: Add the money spent by buyers on final goods and services. • Income Approach: Adding all wages and all profits. must add rest and interest • Value-Added A...
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