weve selected societys answer to the core issue of WHAT to produce a

Weve selected societys answer to the core issue of

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we’ve selected- society’s answer to the core issue of WHAT to produce a. Consumption b. Investment c. Government spending d. Net exports e. GDP components Consumption 1. Goods and services used by households are called consumption goods Investment 1. Investment goods represent another use of GDP 2. Investment goods are the plants , machinery , and equipment we produce 3. Net changes in business inventories and expenditures for residential construction are also counted as investment Government spending 1. Third major use of GDP is the public sector 2. Federal , state , and local governments purchase resources to police the streets, teach classes, write laws, and build highways 3. The resources purchased by the government sector are unavailable for either consumption or investment purposes Net Exports - The value of exports minus the value of imports 1. Exports - Goods and services sold to international buyers - Export some of our output to other countries, for whatever use they care to make of it- GDP (the value of output produced) - larger than the sum of our
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own consumption, investment, and government purchases to the extent that we succeed in exporting goods and services 2. Import - Goods and services purchased from international sources - These goods and services aren’t part of America’s GDP since they weren’t produced within our borders - imports never enter the GDP accounts Exports are added to GDP Imports are subtracted to GDP The difference between the two expenditure flows is called net exports GDP Components 1. The value of GDP can be computed by adding up the expenditures of market participants 2. C = consumption expenditure I = investment expenditure G = government expenditure X= exports M= imports 3. GDP accounting emphasizes the fact that all the output produced in the economy must be claimed by someone 4. If we know who’s buying our output , we know how much was produced and what uses were made of it- WHAT question Measures of income 1. Instead of looking at who’s buying our output, we can look at who’s being paid to produce it- like market themselves 2. GDP accounts : a. Expenditure (the demand side) b. Income (the supply side) 3. The total value of market incomes must equal the total value of final output, or GDP - one person’s expenditure always represents another person’s income
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Output= Input 1. The spending that establishes that value of output also determines the value of incomes 2. With minor exceptions, the market value of income must equal the market value of output 3. Production possibilities of the economy define not only the limits to output, but also the limits to real income 4. The amount of income actually generated in any year depends on the production and expenditure decisions of consumers , firms , and government agencies 5. Every dollar spent on goods and services provides income to someone National Income 1. By charting the flow of income through the economy, we can see FOR WHOM our output was produced The Equivalence of Expenditure and Income
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1.
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