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# chap18 - Chapter 18 Measuring Economic Activity GDP and...

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Chapter 18: Measuring Economic Activity: GDP and Unemployment

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Why should we care? Real GDP, the value of goods and services produced in the U.S., grew at an annual rate of 1 percent in the fourth quarter….” “The unemployment rate last month rose to 5.8 percent, its highest level since….” “Inflation appears subdued as the consumer price index registered an increase of only 0.2 percent last month…”
Gross Domestic Product ( GDP ) Definition: The market value of the final goods and services produced in a country during a given period Market value is used to aggregate the quantities of different goods and services into one measurement Calculating GDP for Orchardia Total production = 4 apples, 6 bananas, and 3 pairs of shoes Price of apples = \$0.25 Price of bananas = \$0.50 Price of shoes = \$20

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Calculating GDP for Orchardia (4 x \$0.25) + (6 x \$0.50) + (3 x \$20) = \$64 Observation More expensive items receive a higher weight than cheaper items. Orchardia’s production changes to 3 apples, 3 bananas , and 4 shoes (3 x \$0.25) + (3 x \$0.50) + (4 x \$20) = \$82.25
Final Goods or Services Goods or services consumed by the ultimate user; because they are the end products of the production process, they are counted as part of GDP Intermediate Goods or Services Goods or services used up in the production of final goods and services and therefore not counted as part of GDP What if apples and bananas are used to produce fruit punch?

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Final Goods and Services Bread Production Milling Co. pays \$0.50 for wheat Bakery pays \$1.20 for flour Bakery sells bread for \$2.00 Contribution to GDP = \$2.00 Getting a haircut Barber charges \$10 for a haircut Barber pays his assistant \$2 Contribution to GDP = \$10
Some goods that can be either intermediate or final. Examples: apples can be consumed directly or used to make apple cider. Milk can be consumed by consumers or used to feed pigs. Capital Good (difficult to classify) A long-lived good, which is itself produced and used to produce other goods and services Examples: factories, machines, houses Why not classify them as the way we classify apples or milk in the above example? They are not used up in one period.

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chap18 - Chapter 18 Measuring Economic Activity GDP and...

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