Econ Reading 2 - Reading 02 Econ 103 Macroeconomic...

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Reading 02 page 1/2 Econ 103 — Macroeconomic Principles Fall 2010 National Accounting Gross Domestic Product (GDP) is the sum of all outputs that a country produced. Note that we need prices of each product to find the value of GDP since we cannot add apples and oranges, but their monetary values. However, one needs to be careful not to double count outputs. Consider the following example: the production of DVDs. The price of a DVD is $12. But, a firm which produces the DVD firm had to purchase blank DVDs from a firm that produces plastic at $1 per blank DVD and it also needed to pay $0.50 to a paper firm for the cover. Now, one might count $13.5 as GDP in this situation: 12 + 1 + .50 = 13.5. However, this is not true. Since $1 was counted into GDP when the plastic firm sold it, it cannot be charged again in the price of a DVD. The same goes for the paper. A price of a single DVD can be parsed in the following way: Blank DVD $1 Cover $.50 Burning $3 Copyrights $5 Labor $2.50 Total $12
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Econ Reading 2 - Reading 02 Econ 103 Macroeconomic...

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