Chapter 04

Chapter 04 - AnEconomicBarometer WhatexactlyisGDP?

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An Economic Barometer   What exactly is GDP?  How do we use GDP to tell us whether our economy is in  a recession or how rapidly our economy is expanding?  How do we take the effects of inflation out of GDP to  reveal the rate of growth of our economic well-being?  And how do we compare economic well-being across  countries?
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Gross Domestic Product  GDP Defined GDP  or  gross domestic product  is the market value  of all final goods and services produced in a country  in a given time period. This definition has four parts:   Market value  Final goods and services  Produced within a country  In a given time period
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Gross Domestic Product  Market Value GDP is a market value—goods and services are  valued at their market prices.  To add apples and oranges, computers and popcorn,  we add the market values so we have a total value of  output in dollars.
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Gross Domestic Product  Final Goods and Services GDP is the value of the  final goods and services   produced.  final good  (or service) is an item bought by its final  user during a specified time period.  A final good contrasts with an  intermediate good which is an item that is produced by one firm, bought  by another firm, and used as a component of a final  good or service. Excluding intermediate goods and services avoids  double counting. 
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Figure 1:  Stages of Production $1.00 (Wood Chips) Lumber Mill $1.50 (Raw Paper) Paper Mill $2.25 (Notebook Paper) Office Supplies Manufacturer $3.50 (Notebook Paper) Wholesaler $5.00 (Notebook Paper) Retailer
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Gross Domestic Product  Produced Within a Country GDP measures production within a country— domestic production. In a Given Time Period GDP measures production during a specific time  period, normally a year or a quarter of a year.
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Different Approaches to GDP Expenditure Approach Value-Added Approach Income (Factor Payments) Approach
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The Expenditure Approach to GDP Expenditure approach divides output into four categories:    ________________ goods and services (C)—purchased by  households _________________ goods and services (I p )—purchased by  businesses ________________ goods and services (G)—purchased by  government agencies _________________ (NX)—purchased by foreigners
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The Expenditure Approach to GDP When we add up the purchases of all four  groups we get GDP GDP = C + I p  + G + NX
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Consumption Spending The part of GDP purchased by households as final users Largest component of GDP (70%) Includes estimations for  Food - self-produced and consumed Rent - owner-occupied homes Excludes Used goods Assets (stocks, bonds, land) Newly constructed homes
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This note was uploaded on 06/07/2011 for the course ECON 3 taught by Professor Dd during the Spring '11 term at Alvin CC.

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Chapter 04 - AnEconomicBarometer WhatexactlyisGDP?

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