CLEP Macro Economics

Market value of good produced not the market value of

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Market value of good PRODUCED - not the market value of goods SOLD o Example: If a haircut cost $20, and $2 of product was used, $20 is contributed to the GDP Secondhand sales do not count towards the GDP o A 1969 car purchased at auction in 2012 would not count in 2012, would count in 1969 Purchase or sales of Stocks, Bonds, etc, do not count Underground economy – not counted (babysitting, house cleaning, etc) Gross National Product (GNP) - The value of all goods and services produces anywhere in the world by a nation’s citizen during a specified time Included items the GDP does not, (profits an American company earns in Mexico are included in the GNP, not the GDP) Final Product – a good or service used by the consumer Considered in the GDP measure Intermediate Goods – goods that are used in the production of final goods Not considered a part of the nation’s GDP Example: the ingredients of Coke are not included in the GDP, but Coke cans sold are included in the GDP Example: an ice cream sandwich wrapper is not included in the GDP, but the sandwich sold is included in the GDP Excluding intermediate goods prevents the goods from being counted twice --- or more Capital Goods – items that satisfy wants indirectly by facilitating production of consumable goods goods used in the production of final goods, instead of being consumed, they are available for reuse Example: tools, machinery and factories Are included in the GDP Consumption Function - Direct relationship between consumption spending and disposable income As disposable income increases consumption spending increases Consumption - the amount spend by households on goods and services Entertainment, food, and other perishables Three categories of consumption expenditures o Durables o Nondurables o Services Consumer Nondurables – goods like food and clothing – have a short lifespan Consumer Durables - - goods such as Boats, Cars – have a long lifespan Houses are not durables (considered an investment) Capital Income – payments to owners of tangible and intangible capital items Examples: factories, machines and copyrights
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GDP – will almost always equal labor income plus capital income Labor Income – includes wages and incomes of self-employed Labor makes up 2/3 of nations’ GDP Nominal GDP – total value of goods and services produced in a country valued at current prices May increase output in an economy, or from increased prices in that economy. This figure is not corrected for inflation o Example: 2007 GDP 10 apples produced at $1 @ = $10, 2008 GDP 9 apples produced at $2 @ = $18 Real GDP – or Current Dollar GDP – the measure of GDP that is adjusted for inflation, it is the measure that should be used when analyzing different points in time Analyzed during a base year, considered to be the real physical volume of production o Example: 2007 Real GDP 10 apples produced at $1 @ = $10, 2008 Real GDP 9 apples produced at $1 @ = $9 (price adjusted for inflation)
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Market value of good PRODUCED not the market value of goods...

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