macro notes part3 - GDP=Q1*P1 Q2*P2 Q3*P3… 2 Value-added...

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Notes How do we measure wealth/growth? GDP (Gross Domestic Product) 2 Units of measure: Normal GDP - the dollar value of all new domestically produced final goods & services. Real GDP- the physical amount of all new, domestically produced final goods & services. Example on paper! GDP measures- 1. Only looks at new stuff produced in the current accounting year. 2. Only includes things produced within the country’s borders (domestically produced) 3. Must be in the hands of the final user for the year (final good or service) Two ways to measure nominal GDP 1. Expenditure approach- find the final user of each good for the year- multiply the Q sold times P. Then add up across all goods.
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Unformatted text preview: GDP=Q1*P1+Q2*P2+Q3*P3…. 2. Value-added approach- find the value added at each step of the production process & add all those values up. Examples on page!-Does GDP measure what it claims to measure? Not quite- 2 Key omissions 1. Illegal activities 2. Non-market activities- homemaking, cutting grass, etc.-Does GDP measure well-being? Kind of…-Nominal GDP changes due to inflation/deflation • Nominal GDP can be corrected for inflation to get a measure of real GDP-Doesn’t count illegal/non-market activities.-Big changes in stocks of resources don’t show up immediately.-Doesn’t account for the distribution of resources....
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