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QUICK STUDY NOTES - Ch 5 - 6 - Econ 1BB3

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McMaster University
Bridget O' Shaughnessy

Chapter 5 Gross National Product (GNP) – total value of all final G&S produced by a country’s factors in a given period of time  Produced by nations citizens – regardless of where produced/sold  produced by country’s citizens Gross Domestic Product (GDP) – the market value of all final G&S produced within a country in a given period of time; measures both total income and total expenditure  Produced domestically – regardless of who produced it  produced in country’s borders  Y = C + I + G + NX 1. Consumption – spending by households on G&S; durable goods, semi-durable goods, non durable goods, and services 2. Investment – purchase of new capital goods used to produce more G&S; capital equipment, inventories and structures 3. Government Spending – spending on G&S by government, salaries of gov workers, spending on public works o Does not include transfer payments – alter household income but do not affect economy’s production 4. Net Exports – purchases of domestically produced goods by foreigners minus domestic purchases of foreign goods Real GDP – production of G&S valued at constant prices; use base year prices to calculate Nominal GDP – production of G&S values at current prices GDP Deflator – reflects prices of G&S but not quantities produced; measures current level or prices relative to base year prices  GDP Deflator = Nominal GDP x 100 Real GDP Inflation – situation in which economy’s overall price level is rising Inflation Rate – percentage change in some measure of the price level from one period to the next  Inflation Rate in Year X = GDP Deflator Year X – GDP Deflator Year Y x 100 GDP Deflator in Year Y GDP is a good measure of economic well being, but excludes 1. Leisure 2. Value of all activity that takes place outside of markets 3. Quality of environment 4. Distribution of income  Net National Product (NPP) – GNP minus depreciation  National Income (NI) – Net Indirect Taxes; total income earned by a nations residents in the production of G&S; excludes business tax and subsidies  Personal Income (PI) – retained earnings; interest income and income that households receive from gov transfer payment; excludes corporate income taxes and contributions for social insu
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