week 3 - CHAPTER 7 1.1 The income approach totals the...

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CHAPTER 7 1.1 The income approach totals the receipts for all of the factors of production and others who receive money because of the process. The expenditure approach totals the amount spent on total consumption, investments, government purchases, net exports. Value added means that at each part of the process from the raw materials to the final product, some person is putting in an addition to what the final consumer will pay for the product. When a person is paid their money will be included into the GDP as income using the income approach. If using the expenditure approach, only the final sale to the consumer is added into the GDP and only in the year the product was produced. Otherwise it is just a huge lump investment. The farmer produces wheat; his payment of $0.30 is the amount of value added, and the amount added to GDP. The miller takes that wheat, turns it into flour; his payment of $0.50 includes his cost of $0.30 plus his value added of $0.20, and $0.20 is added to GDP at that stage. The wholesaler makes this available in quantities and locations that will satisfy the retailer; his payment of $1.00 includes his cost of $0.50 plus his value added of $0.50, and $0.50 is added to GDP at that stage. The grocer, who is the final retailer,
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This note was uploaded on 03/05/2012 for the course MACRO 101 taught by Professor Ducharme during the Spring '12 term at Grantham.

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week 3 - CHAPTER 7 1.1 The income approach totals the...

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