Chapter 5 Flashcards
What are the three ways to measure national income
Value Added
The expenditure side
The income side
Value added
Production occurs in stages: some firms produce outputs that are used as inputs by other firms
VA= Sales revenue - the cost of intermediate goods
payments owed to the firm’s factors of production
Double counting (multiple counting )
Adding all sales of all firms
Overestimates GDP
Only the values of production of final goods are included in GDP
What are the broad categories of expenditure
Consumption (C)
Investment (I)
Goverment Purchaes(G)
Net Export (Nx)
Consumption expenditure (C)
Expenditure on goods not for present consumption
Inventories
Stock of raw materials, goods in process, and finished goods held by firms
Used to mitigate the effect of short-run inflation
New Plant and equipment
Capital Goods
New Residential housing
A new house is a durable asset that provides housing for a long period of time
Not part of (C) but is (i)
A resale of a house is a transfer of ownership and does not affect the GDP
Gross and net investment
Replace Investment- needed to replace worn out capital
Net investment= gross investment - depreciation
Government Purchase (G)
All goverment expenditure is on goods and services excluding transfer payment
Net Exports
Exports - Imports (X-Im)
What is GDP equal to when measured from expenditure side
Expenditure of domestically produced output
GDP = Ca + Ia + Ga + NXa
a = subscript Actual
Wages and Salaries
All pre tax earnings take home, pay income tax withheld
Intrest
Earned on bank deposits and investments paid on loans
Net Domestic Factor Cost
Intrest + Business Profits
