MeasuringGDP2 - infrastructure development national defense...

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Measuring GDP GDP can be measured either from the approach of Demand or Supply. The two approaches will yield the same measure of GDP because for every dollar spent on output, a dollar of income is earned from the production of that output. DEMAND-SIDE SUPPLY-SIDE SPENDING APPROACH Categories of Expenditures C + I + G + (X – M) Who buys the output of the U.S.? INCOME APPROACH (Income earned by current factors of production - land, labor, capital & entrepreneurial talent - for their contributions to the production of final goods & services) Spending Done on this Year’s Output Production or Output Aggregate Demand, (AD) Aggregate Supply, (AS) 1. Consumption: Individual & household spending (~ 67% of GDP) 2. Investment: Business spending (~ 15% of GDP) Capital stock o Depreciation allowance o Additions to capital Construction ’s in inventory levels 3. Government spending (~ 22% of GDP) (Refers to gov’t purchases of goods & services for later supplying a public good such as
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Unformatted text preview: infrastructure development, national defense, law enforcement, public education, etc. It does not include transfer payments.) 4. Net exports: (exports – imports) (Foreign demand for US goods & services minus domestic demand for foreign goods & services ) GDP: Sum of the above 4 categories of expenditures yields GDP. It is GDP expressed in terms of the total market value of all final goods & services DEMANDED & PURCHASED by the above 4 groups in a given period. (AE) 1. National Income (or income earned by factors of production: • Wages, salaries • Rents • Interest • Dividends • Proprietor’s Income • Corporate Profits 2. Depreciation allowance: (~10% of US GDP) 3. Indirect business taxes: (~10% of U.S. GDP) GDP: Sum of the above yields GDP expressed in terms of income earned by factors of production in a given period. It can also be expressed in terms of the total output of the economy in this time period. (Y)...
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