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Unformatted text preview: Chap 2 1) Product, Expenditure and Income approaches 2) Value added: value of all goods produced in the economy and then subtract the value of intermediate goods used in the production of the total value added 3) The income-expenditure identity is important to understand the income approach, it states that the total quantity of output or value added in the economy is ultimately sold, showing up as expenditure. What is spent on all output produced is income for someone in the economy. Aggregate output = Aggregate income 4) GNP is the same as GDP but it also measures the value of output produced by domestic factors of production abroad. 5) GDP is not a good measure of economy welfare. It doesnt take into account how income is distributed. Moreover, activities such as trade in illegal drugs in the underground economy are not counted and affect GDP. Also, non market activities are not included such as the home production. And last but not least, the government expenditure is measured by the cost of production as it is not sold at market prices. Government production could be either overvalued or undervalued and affect GDP 6) Two difficulties in the measurement of aggregate output using GDP are the measurement of...
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- Spring '09