Farmer processing plant packaging plant wholesale

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Farmer Processing plant Packaging plant Wholesale Retailer Grocery store Public Wheat $5 $8 $9 $12 $15 $19 Only the $19 of the final product should counted in GDP and Not 5 + 8 + 9 + 12 + 15 + 19 Financial Transactions Purchase of corporate stocks and bonds does not add to GDP
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- 5 - Transfer Payments At first glance, transfer payments appear to belong in GDP. When the government issues a social security or unemployment benefit or insurance check, isn’t this a form of government spending. Shouldn’t it be part of GDP, like defense spending or salaries paid to government employees? GDP includes only payments of goods and services produced this year. A person receiving a social security check is not being reimbursed for producing a good or service this year. Transfer payments by Medicare, social security, and etc. are not included in GDP. Transfer payments when spent, falls under consumer spending GDP vs. REAL GDP GDP = P x Q → Nominal GDP Real GDP Is GDP that has been adjusted for price changes GDP = P x Q assuming the price stay the same Population Example: Birthday party every yr. for the past 3 year – order pizza 2000 = $6 2001 = $7 2002 = $8 since the pie was the same every year the only thing that got bigger was its price. If we wanted to compare the national economic picture on total production (real GDP) from one year to the next, we would have to get rid of deflator. To understand the concept of real GDP, you’re going to need to calculate Per Capita Real GDP = Real GDP Population GDP DEFLATOR Calculated quarterly by the Department of Commerce. The deflator is really a price index, like the consumer price index. It is used to measure price changes in the items that go into GDP Real GDP is GDP that has been adjusted for price changes. GDP = P x Q assume the price stay the same
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- 6 - Real GDP = GDP c x GDP deflator b GDP deflator c GDP = 3500 x 100 ( base yr.) 110 (provided by dept. of commerce ) Per Capita Real GDP = real GDP Population Per Capital Real GDP in the U.S (1992) = 5,950,700,000,000 255,435,000
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