ECON 209 Lecture : CHAPTER 20.docx

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Chapter 20 the measurement of national income. Production occurs in stages: some firms produce outputs that are used as inputs by other firms, and these other firms, in turn, produce outputs that are used as inputs by yet another firms. The error that would arise in estimating the nation"s output by adding all sales of all firms is called double counting. Intermediate goods: all outputs that are used as inputs by other producers in a further stage of production. Final goods: goods that are not used as inputs by other firms but are produced to be sold for consumption, investment, government, or exports during the period under consideration. It is extremely difficult, if not impossible, to distinguish final from intermediate goods. To avoid double counting, economists use the concept of value added: the value of a firm"s output minus the value of the inputs that it purchases from other firms. | value added = revenue costs of intermediate goods |

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