ECON 20a Chapter Notes - Chapter 3: Gross Domestic Product
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7. The difference between nominal GDP and real GDP is that nominal GDP:
A. |
measures a country's production of final goods and services at current market prices, whereas real GDP measures a country's production of final goods and services at the same prices in all years. |
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B. |
is measured in dollar terms, whereas real GDP is measured in terms of numbers of goods and services produced |
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C. |
measures the total value of only final goods and services, whereas real GDP measures the value of all goods and services, both intermediate and final |
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D. |
measures a country's production of final goods and services at fixed prices, whereas real GDP measures a country's production of all final goods and services at current market prices |
Intermediate goods are goods and services that are purchased for resale or for further processing or manufacturing. Final goods are consumer goods, capital goods, and services that are purchased by their final users, rather than for resale or for further processing or manufacturing. Including the value of intermediate goods in the measure of real GDP would amount to multiple counting, and therefore distort the value of GDP. Value added is the market value of a firm’s output less the value of the inputs the firm has bought from others.
Using the table below, calculate the total sales values, value-added, and fill in the missing boxes. The product is assembled for sale is a fancy wool suit.
Stages of Production | Sales Value of Materials or Product | Value Added |
$0 | ||
Firm A: Sheep Ranch | $120 | |
Firm B: Wool Processor | $180 | |
Firm C: Suit Manufacturer | $220 | |
Firm D: Clothing Wholesaler | $50 | |
Firm E: Retail Clothier (Market) | $80 | |
Total Sales Value | ||
Total Value Added |