ec 5 study guide 3

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Kelly Greenhill

GDP Measuring Total Production and IncomeGross domestic product GDP the market value of all final goods and services produced in a country during a period of time typically one yearmeasured using market valuesonly includes the market value of final goodsFinal good or service a good or service purchased by a final userIntermediate good or service a good or service that is an input into another good or service such as a tire on a truckTransfers such as social security payments from Government are excludedGDP only includes production from indicated time periodCircular flow of production and income1Firms sell goods and services to households foreign firms and the government2Firms use factors of production labor capital natural resources and entrepreneurship3Households supply factors of production in exchange for income in the form of wages interest profit or rent4Firms make payments of wages and interest in households in exchange for hiring workers and other factors of production5The sum of wages interest rent and profit is total income in the economy GDP can be measured as the total income received by households 6Households use their income to purchase goods and services pay taxes and save7Can measure GDP either by calculating the total value of expenditures on final goods and services or by calculating the value of total income total incometotal expenditureConsumption spending by households on goods and services not including spending on new housesInvestment spending by firms on new factories office buildings machinery and additions to inventories and spending by households and firms on new housesGovernment purchases spending by federal state and local governments on goods and servicesNet exports exports minus importsStandard equation for GDPYCIGNXGDPYconsumptionC usually in form Cmx m used to find multiplierinvestment Igovernment purchasesGnet exportsNX
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