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GDP

GDP. Gross Domestic Product: total market value ($) of all final goods and services produced within a country in 1 year. Final not intermediate: multiple counting Value-added approach (sum marginal values): value output less value inputs from others

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GDP

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  1. GDP

  2. Gross Domestic Product: total market value ($) of all final goods and services produced within a country in 1 year

  3. Final not intermediate: multiple counting • Value-added approach (sum marginal values): value output less value inputs from others • Spending=Output : Income derived from production (not income from financial investments/nonproduction transactions)

  4. Expenditure Approach • GDP= C + Ig + G + Xn • C: personal consumption (durable, nondurable, services) • I: gross private domestic investment: capital goods, all construction, changes in inventories • Change in capital • Added capital - consumption of fixed capital (depreciation) net investment (for income approach); crucial for growth • Change in inventory • Produced but not sold in year added to GDP; Decline inventory subtracted from GDP • G: government expenditures • Xn: exports – imports (what did Americans make)

  5. Income Approach • Compensation Employees + Rents + Interest + Proprietors’ Income + Corporate Profits • (Indirect Biz Taxes + Depreciation + Net Foreign Factor Income) = GDP

  6. Nominal vs. Real GDP • Consumer Price Index = (price market basket specific year)/(price same basket in base year) x 100 • GDP Price Index = nominal GDP/Price index (in hundreths)

  7. 2 Methods • 1) Find nominal GDP, compute GDP price index, divide nominal by index = real • 2) Break nominal into price and quantity, multiply output by base year price = real • GDP = PY (price level x output)

  8. GDP weaknesses • 1) Nonmarket transactions • France vs. US • 2) Improved Product Quality • 3) Composition + Distribution of Output • Per capita GDP= average vs. median • 4) Underground Economy • 5) Green GDP • Environment, leisure, crime, pollution, etc.

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