THE GDP DEFLATOR

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THE GDP DEFLATOR As we have just seen, nominal GDP reflects both the prices of goods and services and the quantities of goods and services the economy is producing. By contrast, by holding prices constant at base-year levels, real GDP reflects only the quantities produced. From these two statistics, we can compute a third, called the GDP deflator, […]

NET EXPORTS

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NET EXPORTS Net exports equal the purchases of domestically produced goods by foreigners (exports) minus the domestic purchases of foreign goods (imports). A domestic firm’s sale to a buyer in another country, such as the Boeing sale to British Airways, increases net exports. The net in net exports refers to the fact imports are subtracted from exports This […]

GOVERNMENT PURCHASES

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GOVERNMENT PURCHASES Government purchases include spending on goods and services by local, state, and federal governments. It includes the salaries of government workers and spending on public works. Recently, the income accounts have switched to the longer label government consumption expenditure and gross investment, but in this book. we will use the traditional and shorter term government purchases [he […]

INVESTMENT

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INVESTMENT Investment is the purchase of goods that will be used in the future to produce more goods and services. It is the sum of purchases of capital equipment, inventories, and structures. Investment in structures includes expenditure on new housing. By convention. the purchase of a new house is the one form of household spending categorized as investment […]

CONSUMPTION

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CONSUMPTION Consumption is spending by households on goods and services. Goods include household spending on durable goods, such as automobiles and appliances. and nondurable goods, such as food and clothing Services include such intangible items as haircuts and medical care. Household spending on education is also included in consumption of services (although one might argue that it would […]

IN A GIVEN PERIOD OF TIME

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IN A GIVEN PERIOD OF TIME GDP measures the value of production that takes place within a specific interval of time. Usually, that interval is a year or a quarter (three months). GDP measures the economy’s flow of income and expenditure during that interval. When the government reports the GDP for a quarter, it usually presents GDP “at […]