EC140 Lecture Notes - Lecture 2: Counting Measure, Retained Earnings, Gdp Deflator
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Gdp is total production in a country. If all production was sold and consumed, gdp would be easy to measure. Outputs of one company are inputs to another. Measuring value of output counts some output more than once. Measuring gdp is about measuring final production. To avoid double counting - measure value added by all firms. Value added is sales revenue - cost of intermediate goods. How much company sell stuff for cost of goods used to sell those products: does not include labour cost. Value added is equal to wages paid to workers plus profits paid to owners. Value added = revenue cost the difference will either be paid to o workers or profit paid to owners. Total value added is measure of total output. Gdp is the total value of final goods and services produced. Equals the value of expenditure on output. Also equals the income generated by producing that output.
