Net Exports

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Net Exports The United States is an open economy engaged in importing exporting goods and services. The last component of GDP-and an increasingly important one in recent year 1 is exports, the difference between exports .and imports of goods and services. How do we draw the line between our GDP and other countries’ GDPs? The U.S. GDP represents all goods and […]

Taxes.

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Taxes. In using the flow-of-product approach 10 compute GDP,we need not worry about how the government finances its spending. It does not matter whether the government pars for its goods and services by taxing, by printing money, or by borrowing. Wherever the dollars come from, the statistician computes the governmental component of’GDP as the actual cost to the government of […]

Exclusion of Transfer Payments

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Exclusion of Transfer Payments Does this mean that every dollar of government expenditure is included in GDP? Definitely not. GDP includes only government purchases of goods and services; it excludes spending on transfer payments. Government transfer the government payments to individuals that are not made in exchange for goods or services supplied’. Examples “Of government transfers include unemployment insurance, veterans’ benefits, and old-age or […]

Government

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Government Up to now we have talked about consumers but ignored the biggest buyers of all-federal, state, and local governments. Somehow GDP must take into account the billions of dollars of product a ‘nation consumes or invests. How do we’do this? Measuring government’s contribution to, national is complicated because most government services are not sold on the marketplace. Government purchases both […]

Net vs Gross Investment

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Net vs Gross Investment Our revised definition includes “gross investment” along with consumption. What does the word “gross” mean in this context? It indicates, that investment includes all investment goods produced. Gross investment is not adjusted for depreciation, which measures the amount of capital that has been used upin a year. Thus gross investment includes all the machines, factories, and houses built during […]

Investment and Capital Formation

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Investment and Capital Formation So far, our analysis has banished all capital .. In real life, however, nations devote part of their output to production of capital-durable goods that .increase future production. Increasing capital requires the sacrifice of current consumption to increase future consumption. Instead of eating more pizza now, people build new pizza ovens to make it possible to produce more […]

Consumption

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Consumption ‘The first important part of GDP is consumption, or “personal consumption expenditures.” Consumption is by far the largest component of GDP, equaling about two-thirds of the total in recent years. Figure 21-3 shows the fraction of DP devoted to consumption-over the last six decades. Consumption expenditures are divided into three categories: durable goods such as automobiles, non durable goods such […]

Real vs Nominal GDP Deflating GDP by a Price Index

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Real vs Nominal GDP Deflating GDP by a Price Index We define GDP as the dollar value of goods and services. In measuring the dollar value, we use the innerspring  rod of marketer prices for the different goods and services. But prices change over time, as inflation generally sends prices upward year after year. Who would .want to measure […]

DETAILS OF THE NATIONAL ACCOUNTS

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DETAILS OF THE NATIONAL ACCOUNTS Now that we have an overview of the’ national income and product accounts, we will proceed; in the rest of this chapter, on a whirlwind ‘tour of the various sectors. Before we start on the journey, look at Table 21-3 to get an idea of where we are going. This table shows a summary set of […]

Value-added approach

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Value-added approach To avoid double counting, we take care to include only final goods in GDP and to exclude the intermediate goods that are used up in making the final goods. By measuring the value added at each stage, taking care to subtract expenditures on the intermediate goods. bought from other firms, the lower-loop earnings approach properly avoids all double counting and […]