EC102Chapter5Notes - The drawbacks of GDP are that it fails...

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Chapter 5 EC102 notes GDP In order for an activity to be counted in GDP, it must fulfill four conditions. First, it must directly involve a final good or service, which means that intermediate goods and services that are used up to make the final good or service are NOT counted. Second, the good or service must be produced inside the United States. Third, the good or service must be produced this year or this quarter. Fourth, it must be a market transaction (with the exception of government purchases). Nominal GDP Nominal GDP can be measured by adding all the components of spending in an economy. It is calculated using the following equation: GDP = C + I + G + EX - IM, where C = consumption, I = investment, G = government purchases, EX = exports, and IM = imports.
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Unformatted text preview: The drawbacks of GDP are that it fails to count non-market activity, the value of leisure, and the costs of environmental damage. Also, GDP counts "bads," such as the cost of rebuilding bridges, roads, and structures that follow a natural disaster. Therefore, a natural disaster such as an earthquake, hurricane, or tornado may actually lead to an increase in real GDP. Labor Force = unemployed + employed Unemployment rate: the % of members of labor force who are unemployed # Unemployed Workers / Labor Force Participation Rate: the % of the working-age population in the labor force Labor Force / Working-Age Population Working Force = Employed + Unemployed...
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