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| QUICK REVIEW 7-1 |
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- Gross domestic product (GDP) measures the total
market value of all final goods and services produced within a nation in a specific year.
- The expenditures approach to GDP sums total
spending on final goods and services: GDP 5 C 1 Ig 1 G 1 Xn.
- When net investment is positive
the economy's
production capacity expands; when net investment is negative
the economy's production
capacity erodes.
- The income approach to GDP sums the total income
earned by a nation's resource suppliers and then adds in indirect business taxes
consumption of fixed capital (depreciation)
and net foreign factor income.
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| QUICK REVIEW 7-2 |
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- Net domestic product (NDP) is the market value of
annual output less depreciation (consumption of fixed capital).
- National income (NI) is all income earned by
citizens of a particular nation for their current contributions to production within the
nation or abroad.
- Personal income (PI) is all income received by
households whether earned or not.
- Disposable income (DI) is all income received by
households less personal taxes.
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| QUICK REVIEW 7-3 |
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- Nominal GDP is output valued at current prices;
real GDP is output valued at constant prices (base-year prices).
- The GDP price index compares the price (cost) of
goods and services constituting GDP in a specific year to the price of the same market
basket in a reference year.
- A year's nominal GDP can be adjusted to real GDP
by dividing the nominal GDP by the GDP price index (expressed in hundredths).
- The consumer price index (CPI) measures changes
in the prices of a fixed market basket of some 300 goods bought by the typical urban
consumer.
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