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Notes for test 3 - 13:28:00 (GDP (g/s)producedwithina...

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Chapter 11 Measuring Production   GDP 07/11/2010 13:28:00 Gross Domestic Product (GDP)  The market value of all final goods and services (g/s) produced within a  country in a given period  “GDP is the market value”  o GDP uses market prices to measure the value of economic output  “of all” o GDP attempts to be inclusive of all goods produced and sold in legal  markets  “final”  o intermediate goods are not included in GDP (only final goods)  o intermediate goods/services: a g/s that is an input into another g/s  e.g. tires on ford truck, processor in dell laptop  o goods and services  everything (food clothes/ haircuts, doctor visits)  “produced”  GDP only considers foods produced in the current period,  not items resold (no double counting   e.g. Ebay would  not count)  “within a country”  o GDP is defined geographically and includes all domestic production  regardless of citizenship or ownership  o GDP cares where you are, not about who you are  Gross National Product (GNP)  The total market value of all g/s produced by legal residents of a country –  even if production takes place in another country 
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Cares who you are, not where you are  “in a given period of time” o GDP measures value of production over time (yearly, quarterly)  The value of total production in a country (GDP) is equal to the value of total  income (synonymous with total production) in the country  Components of GDP Y = C + I + G + NX o Y: GDP (total production or total income)  o C (consumption): spending by the households (HH) on g/s with the  exception of new home purchasing  * 70% of US GDP Non Durable goods – clothing, food Durable goods – appliances, cars Services – medical, legal Services are the biggest driving force of consumption  o I (investment): spending on goods that will be used in the future to  produce more g/s (such as capital employment investments and  structures) Business fixed investment (* biggest contributor to investments) spending by firms on new buildings, machinery  residential investments  spending by HH or firms on single or multi unit homes  changes in business inventory  unsold goods from a previous year that are kept to try to  sell the next year  o G (government spending) 
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Spending on g/s by local, state and federal government  E.g. Military, roadways, schools, public work projects Not included are transfer payments   payments by the  government to individuals for which the government does not 
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