Measuring the Economy’s output (Pg. 97)
Gross Domestic Product (Pg. 98)
Main measure of economy’s performance
Monetary measure of nation’s output
Form of aggregate output
Service or product counts towards GDP for country it was built/provided in
Price/Monetary value shows relative worth
Ex. Sofa vs. Computer
Avoiding Multiple Counting (pg.99)
All services and products must only be counted once
To avoid multiple counting GDP only takes into account Final goods
Final Goods are goods and services purchased for final use and not for resale
or further processing/manufacturing
Intermediate Goods are products that are purchased for resale or further
Including both types of goods would be Multiple counting
Value of final goods includes intermediate goods
Value Added is the value of the product sold by a firm less the value of the
products purchased and used by the firm to produce the product.
GDP Excludes Nonproduction Transactions:
Certain monetary transactions don’t count towards GDP because they don’t
involve final goods:
1. Financial Transactions:
Public Transfer Payments: Social Insurance, welfare, unemployment.
Recipient don’t add to CURRENT production
Private Transfer Payments: Monetary gifts, Parents give cash to kid.
Stock Market Transactions: Buying and selling of stocks and bonds
2. Second Hand Sales:
As soon as it has been bought it is considered used. Used items don’t contribute
to GDP at all.
Two ways of calculating GDP: Expenditures and Income (Pg. 101)
1. Expenditure Approach: The method to measure GDP that adds up all the
expenditures made for final goods and services.
ADD THEM FOR ANSWER
Personal Consumption Expenditures (C) – Household items (car, fridge, TV, bread, milk,
toothbrush, doctor, mechanic, and barber)
Gross Investment (Ig) – Business items
1. Final purchases (equipment tools machines)
3. Changes in inventory
Government Purchases (G) – expenditures for final g/s governments consume in providing
public services (Includes labor, No transfer payments [insurance/welfare/pension],
Net Exports (Xn) – Very Significant n= exports (X) – imports (M) Net Investment inclu