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EC140 Chapter Notes - Chapter 20: Factor Cost, Black Market, Fixed Investment

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School
WLU
Department
Economics
Course
EC140
Professor
Ken Jackson

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EC140 Full Course Notes
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Chapter 20 the measurement of national income. Value added=payments owed to the firms factors of production: the sum of all values added in an economy is a measure of the economies total output. Includes services such as haircuts, dental care, legal advice, non-durable goods, fresh vegetables, clothing, cut flowers, fresh meat, durable goods such as cars, tvs and air conditions. Actual measured consumption expenditure is denoted by the symbol ca: investment: is the expenditure on the production of goods not for present consumption, represented by the symbol i. Changes in inventories: stocks of raw materials, goods in process, and finished goods held by firms to mitigate the effect of short-term fluctuations in production or sales. Capital stock: the aggregate quantity of capital goods. Fixed investment: the creation of new plant and equipment. New residential housing: a house or an apartment building is a durable asset that yields its utility over a long period of time making it an investment expenditure.

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Related Questions

Intermediate goods are goods and services that are purchased for resale or for further processing or manufacturing. Final goods are consumer goods, capital goods, and services that are purchased by their final users, rather than for resale or for further processing or manufacturing. Including the value of intermediate goods in the measure of real GDP would amount to multiple counting, and therefore distort the value of GDP. Value added is the market value of a firm’s output less the value of the inputs the firm has bought from others.

Using the table below, calculate the total sales values, value-added, and fill in the missing boxes. The product is assembled for sale is a fancy wool suit.

Stages of Production Sales Value of Materials or Product Value Added
  $0  
Firm A: Sheep Ranch   $120
Firm B: Wool Processor $180  
Firm C: Suit Manufacturer $220  
Firm D: Clothing Wholesaler   $50
Firm E: Retail Clothier (Market)   $80
  Total Sales Value    
  Total Value Added    

 

 

Inventories are part of an investment and therefore included in GDP because
A. inventories represent the amount of factors of production firms have used to produce goods.
B. the sale of shares of stock are not included in any other​ component, inventories allow GDP to capture this spending.
C. the value added by production goes into goods but not production and since goods start in​ inventory, that component needs to be computed.
D. firms produce​ goods, however, sometimes the goods may be unsold at the time GDP is computed.

What is the market for factors of production?

  1. What is the market for factors of production?

    1. The market for factors of production is where households and firms interact to trade factors of production for factor payments. For example this is where people provide firms with labor and firms pay them with wages. 

  2. What is the money market?

    1. The money market is where households, firms, and the government may save and/or invest their money to earn interests. Money market includes banks, stock market, bonds market, and other financial institutions where economic actors can buy and sell financial assets to earn interests and/or dividends.

  3. Who are the three economic actors in the circular flow model?

    1. In a circular flow model, the three main economic actors are the households, firms, and the government. Households include the typical individual consumers. Firms include businesses and similar producers in the economy. Finally, the government refers to the whole government system from federal to local level.

  4. How is the national income of an economy determined?

    1. The national income of an economy is determined by measuring the total value of the output produced in an economy or the total income earned by the actors in the economy. In a circular flow model, we can see that the value of total output produced should equal the total value of income generated and earned in the economy. This is because every dollar spent by someone in the economy is received by another person in the economy as income.

  5. What is GDP?

    1. The gross domestic product or GDP represents the sum total of the value of the final goods and services produced within the economy for a given year. It is the most commonly used measure of its economy’s productivity and income.