Chapter 2 Part 2

Chapter 2 Part 2 - GDP Expenditure Approach In 2006 U.S...

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35 GDP: Expenditure Approach In 2006, U.S. Gross Domestic Product $13,194.7 billion Personal Consumption Expenditures 70.0% Gross Private Domestic Investment 16.7% Government Consumption Expenditures 19.1% Net Exports -5.8%
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36 GDP: Expenditure Approach Breakdown of Personal Consumption Expenditures: Consumer Durables 11.4% Nondurable Goods 29.1% Services 59.5% Breakdown of Private Domestic Investment: Fixed Investment 97.9% Inventory Investment 2.1% Exports = $ 1,467.6 billion Imports = $ 2,229.6 billion
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37 Personal Consumption Expenditures 0% 5% 10% 15% 20% 25% 30% 35% 1930 1940 1950 1960 1970 1980 1990 2000 Year % of Personal Consumption Expenditu Housing Food Medical Care
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38 GDP: Product Approach Product Approach : The product approach defines a nation’s GDP as the market value of final goods and services newly produced within a nation during a fixed period to time.
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39 GDP: Product Approach Market value (or current value): the value of goods and services at the prices at which they are sold ( market prices ). If we think of market-determined prices as measures of relative economic values , then using market value to measure production will take into account differences in the relative economic importance of different items.
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40 GDP: Product Approach Market value: Q: What if some commodities are not sold in formal markets ? A: They are either not included or only partially included in GDP. Examples: Child care performed within the family without pay . Activities that improve the environment. Activities in the underground economy.
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41 GDP: Product Approach Final goods and services: Intermediate goods are those used up in the production of other goods in the same period that they themselves were produced. But not all inputs in production are being used up in the same period.
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42 GDP: Product Approach Example: In order to produce new cars, a manufacturer has to use steel, tires, glasses etc. These are intermediate inputs. This year the manufacturer also Build a new factory Buy a newly developed software for designing new models.
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43 GDP: Product Approach Capital good : good that is itself produced, used to produce other goods but is not used up in the same period that it is produced. Examples: buildings, machinery, software.
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Chapter 2 Part 2 - GDP Expenditure Approach In 2006 U.S...

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