Lecture_Notes_5 - MONITORINGTHE MARCROECONOMY Gross...

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MONITORING THE  MARCROECONOMY Gross Domestic Product and the Standard of Living CHAPTER 5
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5.1 GDP, INCOME, AND EXPENDITURE Gross Domestic Product (GDP) can be defined as the market value of all the final goods and services produced by firms (regardless of residency status) within a country in a given time period. Gross National Product (GNP): The value of goods and services produced by American firms both resident in the U.S and abroad, in a given time period.
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5.1 GDP, INCOME, AND EXPENDITURE Consuming the Goods and Services Produced in An Economy Goods and services produced in an economy are purchased (consumed) by four distinct groups: households, firms, governments (federal and local), and the rest of the world. Four types of expenditures correspond to these groups: Consumption expenditure Investment Government purchases of goods and services Net exports of goods and services
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5.1 GDP, INCOME, AND EXPENDITURE Consumption Expenditure: Consumption expenditure is the expenditure by households on consumption goods and services. It includes expenditures on popcorn and soda, candy and chocolate bars, and dental and dry cleaning services. Consumption expenditure also includes house and apartment rents, including the rental value of owner- occupied housing .
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5.1 GDP, INCOME, AND EXPENDITURE Investment Expenditure: It is the purchase of new capital goods (tools, instruments, machines, Investment buildings, and other constructions) and additions to inventories. Some firms produce capital goods, and other firms buy them. For example, Dell produces PCs and General Motors buys some of them; Boeing produces airplanes and United Airlines buys some of them.
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5.1 GDP, INCOME, AND EXPENDITURE Some of a firm’s output might remain unsold at the end of a year. For example, if GM produces 4 million cars and sells 3.9 million of them, the other 0.1 million (100,000) cars remain unsold. In this case, GM’s inventory of cars increases by 100,000. When a firm adds unsold output to inventory, we count those items as part of investment. It is important to note that investment does not include the purchase of stocks and bonds. In macroeconomics, we reserve the term “investment” for the purchase of new capital goods and the additions to inventories
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5.1 GDP, INCOME, AND EXPENDITURE Government purchases of goods and services: The expenditure by all levels of government (federal and local) on goods and services. Net exports of goods and services: The value of exports of goods and services minus the value of imports of goods and services.
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Exports of goods and services: Items that firms in the United States sell to the rest of the world. Imports of goods and services:
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Lecture_Notes_5 - MONITORINGTHE MARCROECONOMY Gross...

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