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Chapter16 - Chapter 16 Spending Income and GDP I...

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1 Chapter 16: Spending, Income and GDP I. Introduction Measures of how economy is doing are important for firms, households, and policy makers. Output, unemployment, inflation are like vital signs Output is the most difficult to measure, so we will spend a lot of time on it
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2 II. GDP Definition Definition: Gross Domestic Product (GDP) is the market value of all of the final goods and services produced within a country in a given time period. 4 parts of definition 1. Market Value: Suppose the country of Gondor produces the following: 10 oranges 15 cloaks 6 swords
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3 1. Market Value - continued
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4 1. Market Value – continued 2
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5 2. Final Goods and Services
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6 2. Final Goods and Services – continued Intermediate goods:
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7 2. Final Goods and Services – continued
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8 2. Final Goods and Services – continued Example: Bread Suppose a loaf of Orowheat bread sells for $2.00. We could just count that as final output for GDP. Or we could instead count the value added (VA) at each stage: Company Revenue Cost of inputs VA ABC grain 0.50 0.00 0.50 Gold Medal flour 1.20 0.50 0.70 Orowheat bread 2.00 1.20 0.80
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9 2. Final Goods and Services – continued Important points to note about value added:
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10 3. Produced within a Country
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11 4. In a given time period
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12 III. Measuring GDP in ways other than product.
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