segundo tema -Measuring-Gdp-and-Growth-Study-Guide

segundo tema -Measuring-Gdp-and-Growth-Study-Guide -...

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75 5 MEASURING GDP AND ECONOMIC GROWTH* Key Concepts ± Gross Domestic Product Gross domestic product , GDP , is the market value of all the final goods and services produced within in a country in a given time period. A final good or service is an item that is bought by its final user during a specified time period. In con- trast, an intermediate good is an item produced by one firm, bought by another and used as a compo- nent of a final good or service. Intermediate goods are not directly included in real GDP. The circular flow of income and expenditure shows real and monetary flows in the economy. The circular flow involves: Four economic sectors — households, firms, gov- ernments, and the rest of the world. Three major markets — factor markets, goods mar- kets, and financial markets. In these markets people make their economic decisions by choosing the amounts of key economic variables: Consumption expenditures ( C ) — total house- hold spending on consumption goods and services. Investment ( I ) — firms’ purchase of new plants, equipment, buildings, and additions to inventories. Government expenditure ( G ) — government expenditure on goods and services. Net taxes ( T ) are taxes paid to the government minus transfer payments received from governments and minus in- terest payments on the government’s debt. Net exports ( NX ) — exports ( X, sales of U.S. * This chapter is Chapter 21 in Economics . goods and services abroad) minus imports ( M, pur- chases of foreign good and services). Aggregate expenditure , C + I + G + NX , equals aggregate production, GDP, and also equals aggregate income, Y. This equality is the basis for measuring GDP. National saving equals saving by households and businesses plus government saving: S + ( T G ). Borrowing from the rest of the world equals M X . Investment is financed by national saving plus borrow- ing from the rest of world, I = S + ( T G ) + M X. A flow is a quantity over a unit of time. A stock is a quantity that exists at a moment in time. Wealth and capital are stocks; saving and investment are flows. Wealth , the value of things that people own, is a stock; income , what people earn, is a flow. Saving is the amount of income remaining after spending on consumption. Saving is a flow that adds to wealth. Capital , the amount of plant, equipment, and in- ventories used to produce other goods, is a stock. Depreciation (also called capital consumption ) is the decrease in the capital stock because of wear and tear and obsolescence. Gross investment is the total amount of investment. Net investment is the amount by which the capital stock changes. Net in- vestment equals gross investment minus deprecia- tion. Gross domestic product includes depreciation and so
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This note was uploaded on 03/22/2011 for the course ECON 3022 taught by Professor Rodriguez during the Spring '11 term at Universidad de Puerto Rico.

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segundo tema -Measuring-Gdp-and-Growth-Study-Guide -...

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