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Market value of all final goods and services produced within a country in a given period of time.
• Market value: what the price should be.
• of all: legal, commercially sold.
• final: capital and consumption goods, but no intermediate goods.
• Goods and services: both tangible and intangible products.
• produced: reselling doesn’t count.
• within a country: geographical.
• in a given period of time: time constraint (ex: quarterly, yearly).
• Output approach.
• Final good approach:
• Value added approach:
VAGDP. The value added is the value of output minus the value of used
• Demand approach.
• GDP = Private Consumption (C) + Gross Investment (I) + Government Spending (G) + Net Export
• Private Consumption (60-70%): durable goods, nondurable goods, services.
• Gross Investment (15-17%): fixed investment (machinery, building (residential, non-
• Government Spending (15-20%): federal, provincial, local.
• Net Export NX = X – Q (±5%): >0 (trade balance surplus), <0 (trade balance deficit), >0
• Income approach.
• Idea: When output is sold, somebody in the economic earns it.
• GDP ≈ Labor Compensation + Capital Return + Rent
• Doesn’t quite add up to GDP because of indirect taxes and depreciation.
INFLATION AND PRICES
• Nominal GDPt =
tt QP – has both price and quantity in it.
• Real GDPt =
tbQP – based on a base year, and yields the change of aggregate quantity.
• GDP deflator = 100
GDP nomial×, or
= so PYY =$. This is the price of the aggregate good.
• From here, we can calculate the inflation of P – GDP deflator inflation.
Real GDP Growth Ratet = 1001
Cost of Living
• Cost of Living =
btQP – Qb (the bundle) is based in a base year.