ECON 209 Lecture : Chapter 20 Measurement of National Income.docx

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ice cream = consumers buy it = firms pays inputs, owners, workers: product gdp, expenditures gdp. National product = national output = national income. Production occurs in stages most firms produce outputs that are other firm"s inputs. Double accounting: error that would arise in estimating the nation"s output by adding all sales for all firms. Each firm"s contribution to total output is its value added. Value added = revenues cost of intermediate goods. Value added = payments to factors of production. Summing value added avoids the problem of double counting when measuring total output. Total value added in economy is called gross domestic product (gdp) 3 methods for measuring national income: total value added from domestic production, total expenditures on domestic output, total income generated by domestic production. Because of circular flow of income, these three measures yield same gdp. Consider adding up expenditures needed to purchase the final output produced in any given year.

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