Economics_Ch11

# If we were to calculate the gdp by adding together

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Unformatted text preview: goods used to produce the book. In a way, we can say that the book is paper and ink (book paper ink). If we were to calculate the GDP by adding together the value of the book, the paper, and the ink (book p aper i nk), we would, in effect, be counting the paper and ink twice. Because the book is paper and ink, once we count the book, we have automatically counted the paper and the ink. It is not necessary to count them again. A car is made up of many intermediate goods: tires, engine, steering wheel, radio, and so on. When computing GDP, we count only the market value of the car, not the market value of the car plus the market value of the tires, engine, and other intermediate goods. EXAMPLE: QUESTION: I assume that each country in the world computes its GDP. Why is GDP so important? ANSWER: Countries are interested in computing their GDP for much the same reason that individuals are interested in knowing their income. Just as knowledge of your income from one year to the next lets you know “how you’re doing,” GDP does much the same...
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## This document was uploaded on 01/16/2014.

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