Measuring a Nation's Income: Gross Domestic Product (GDP) - Prof. Jeffrey Carlson, Study notes of Microeconomics

Download Measuring a Nation's Income: Gross Domestic Product (GDP) - Prof. Jeffrey Carlson and more Study notes Microeconomics in PDF only on Docsity! ECO 105: Principles of Economic Theory Chapter 10: Measuring A Nation’s Income I. The economy’s income and expenditures A. The circular flow and the equivalence of income and expenditures 1. Note that there are two parties to every transaction: a buyer and a seller Focus on how households and businesses interact in the resource and product markets. Flow of real inputs and outputs versus the flow of money. II. The measurement of gross domestic product (GDP) A. Definition: GDP measures the market value of all final goods and services produced in the domestic economy in a given period of time (usually a calendar year). • Note that it doesn’t matter who is doing the producing, so long as the production takes place within the borders of the U.S. B. What is versus what is not included in GDP: some examples 1. Intermediate versus final goods and services 2. New versus used goods 3. Production in the home and illegal activities III. The components of GDP A. GDP = Y = C + I + G + NX where C = consumption purchases I = gross investment spending • physical plant and equipment • residential construction • net changes in inventories G = government purchases (as opposed to spending; transfer payments are not part of G) NX = net exports (exports - imports) Y = income