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02 GDP.docx

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Peter Sinclair

GDP Y = total income C = consumption expenditures I = investment expenditures G = government expenditures X = exports M = imports W = net withdrawals t = tax Net exports = (X – M) YD= disposable income b (slope) = marginal propensity to consume (MPC) b = change C/ change Y D C = a + bY MPS = change S/ change Y D MPC + MPS = 1 APC = C/ YD APS = S/ YD AE = C + I Multiplier = 1/(1 – slope of AE) Multiplier = 1/[1-b(1-t)] GDP (gross domestic product): market value of all final goods produced in a country in a given time period Intermediate products: outputs of some firms that are used as inputs by other firms Value added: each firms contribution to total output Final good: item bought by its final user during a specified time period GDP = total expenditure on final goods = total income Nation income = sum of value added = sum of expenditure = sum of income => Y/GDP = C + I + G + (X – M) Ca= actual consumption Expenditure approach: GDP = C + I + G + (X – M) (spending on goods produced current year) Inventories: stocks of raw materials not yet sold a = actual investment Accumulations of inventories are actual Ga= actual government investments because they represent goods purchases exclude produced
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