EC140 Lecture Notes - Lecture 20: Gross Domestic Product, Counting Measure, Retained Earnings

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yellowhound490

28 Mar 2016

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Gdp is total producion in a country. If all producion was sold and consumed, gdp would be easy to measure. Outputs of one company are inputs to another. Measuring value output counts some output more than once. Measuring gdp is about measuring inal producion. To avoid double couning- measure value added by all irms. Value added is sales revenue- cost of intermediate goods. Value added is equal to wages paid to workers plus proits paid to owners. Total value added is a measure of total output. Gdp is the total value of inal goods and services produced. Equals the value of expenditure on output. Also equals the income generated by producing that output. Producion, expenditure, and income are all equal by deiniion. Consumpion expenditure: goods and services sold to inal users. Investment expenditure: goods not for current consumpion, inventory, plant/equipment, housing. Government purchases: current expenditure, government investment. Net exports: total exports minus total imports, count goods and services.

Related Questions

In a given year, we find the value of final goods and services produced in the economy is $15t. Your professor told you that this is the expenditure approach to measuring GDP. He also told you we can measure GDP using the value of all the incomes generated from that production, but when you do, the dollar value of incomes is less than $15t. Please explain why this is so AND how this problem is corrected.

yellowwoodchuck103

Topic 1: GDP and Its Limitations

The national income accounts measure productivity, spending, and income; but these accounts were not designed to measure economic welfare. GDP only measures the value of marketed goods and services for a country during a given period of time. Goods and services that are not sold in markets, such as food produced and consumed at home and household articles, are not included in GDP. Discuss aspects of economic welfare ignored in GDP measurement.

Discussion Checklist:

A.) What are the limitations of the GDP in measuring total output and national welfare?

B.) What products (goods and services) are excluded from the GDP computation?

C.) What are the impacts of the shortcomings of the GDP as a measure of the national product and national welfare?

ochrewolf599

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

amethysttrout886

EC140 Lecture Notes - Lecture 20: Gross Domestic Product, Counting Measure, Retained Earnings

EC140 Full Course Notes

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