# Exploration by liaoqinmei

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```									Exploration 11
Gross Domestic Product
[National Income Accounting]
   This is the final economic measurement of
the state of the economy.
   Don’t forget that, besides these three,
measurements of inequality are also
important.
You should be able to:
   Define GDP and explain its limits
   List and explain the four components of
GDP
   Explain why GDP [expenditures] = output =
income
Verbal questions – final good?
   Mayonnaise
   Purchased by me
   Purchased by State Line diner
   Computer System
   Purchased by me
   Purchased by Verizon
Categories of Final Goods:
Expenditures Approach
   GDP =
   Consumption [C] +
   Investment [I] +
   Government purchases [G] +
   Net exports [X – M]
   GDP = C + I + G + [X – M]
   What is GDP today?
   Bureau of Economic Analysis
Team exercise – Try your skill at
counting GDP [EL p70/71]
   “Clickers”
   A = government
   C = consumer spending
   D = net exports
   E = excluded
Equality of output, income and
expenditure
   We’ve discussed expenditures
   But how much income will there be in an
economy?
   The Pie Principle
   The size of the pie we eat is equal to the size of the pie
we bake
   \$10B in production (output) = \$10B goods and services to
use
   Income is just a name for the right to use goods and
services
Equality of Income and Expenditure
   Circular flow, Fig 7-1, p 167:
   HH selling labor services/buying goods
   BF buying labor services/selling goods
   GDP [Expenditures] = Output = National Income
   Key idea: whatever is produced is paid for
   Wages + rents + interest + profits
net foreign factor income. [Fig 7-2, p 171]
What’s are some limits to GDP?
   Treats “goods” and “bads” the same
   Treats crime, divorce and natural disasters as
economic gain.
   Environmental spills and cleanups count
   Ignores non-market activity
   Depletion of natural capital as income
   Takes no account of income distribution
Ed Diener, Martin E. P. Seligman, “Beyond Money: Towards an Economy of Well-Being”

http://www.brookings.edu/dybdocroot/comm/events/20040603b.pdf
Counting Expenditures
& Income: The Pie
Principle
Team Exercises [EL p72]
Expenditures*         Income*
C             5660    w              4920
I             1330    prop income    560
G             1470    corp profits   820
X              960    rents          140
-M            -1080   interest       450
8340    sales taxes    560
deprec         890
8340
*\$ billions
Next time:
   What is most popular movie of the week?
   What is the most popular movie of all time?

As measured by box-office receipts.
Wrap up: What did you learn?
   What is GDP? What are intermediate
goods?
   What are the components of GDP:
   Expenditures approach?
   Income approach?

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