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Chapter5 econ302 - changes in GDP and therefore employment...

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Chapter 5 Gross Domestic Product CHAPTER SUMMARY Gross Domestic Product (GDP) is a measure of our nation's total output. GNP was abandoned in favor of GDP in 1991. GNP measures the market value of final goods and services produced by U.S. residents no matter where they are located. GDP measures the market value of final goods and services produced within the U.S. whether by Americans or foreigners. GDP is a better measure of the output within our borders and is therefore the measure of economic performance preferred. We are interested in what GDP is because it determines the employment and income level of the nation. GDP can be investigated using either the income approach or the expenditures approach. The expenditures approach is emphasized here. It is given by: GDP = C + I + G + (X - M). Whenever there are changes in any of the spending components of GDP this will cause
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Unformatted text preview: changes in GDP, and therefore employment and the nation's income level. There are many other national income accounts as one moves from GDP to disposable personal income. GDP only counts final goods and services. Moreover, using real (or inflation-adjusted) GDP enables us to make more meaningful comparisons of the nation's economic performance over time. The GDP deflator is a broad index used to convert nominal GDP to real GDP. GDP is not, nor was it ever intended to be a measure of social well-being. NEW CONCEPTS INTRODUCED gross domestic product (GDP) circular flow model personal income (PI) gross national product (GNP) expenditure approach disposable personal income (DI) transfer payment income approach nominal GDP final goods national income (NI) real GDP intermediate goods indirect business taxes GDP chain price index flow stock...
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