Notes on Gdp
Chapter 7 Measuring a nation's income
The economy's income and expenditure
GDP measures two things at once: the total income of everyone in the economy and the total expenditure on the economy's output of goods and services. GDP can perform the trick of measuring both total expenditure because these two things are really nearly the same. For an economy as a whole, generally, income must equal expenditure
This is true because: An economy's income is the same as its expenditure because every transaction has two parties a buyer and a seller. Every dollar of spending by some buyer is a dollar of income for some seller
Issues: Households do not spend all of their income; they pay some of it to the government in taxes, and they save some for use in the future. In addition, households do not buy all goods and services produced in the economy; some goods and services are bought by governments and some are bought by firms that plan to use them in the future to produce their own output. General rule of thumb still stands.
The measurement of GDP
Definition of GDP as a measure of total expenditure: the market value of all final goods and services produced legally within a country in a given period of time
GDP is the market value…
Because market prices measure the amount people are willing to pay for different goods, they reflect the value of those goods. If the price of an apple is twice the price of an orange, then an apple contributes twice as much to GDP as does an orange
...of all...
It includes all items produced in the economy and sold legally in the markets. GDP also includes the market value of the housing services provided by the economy's stock of housing such as rent for rental properties and possible rental return for those that have their own home (rent to oneself)
GDP excludes most items produced and sold illegally and does not include goods and services that do not enter the market at all - such as the use of backyard vegetables for the
The economy's income and expenditure
GDP measures two things at once: the total income of everyone in the economy and the total expenditure on the economy's output of goods and services. GDP can perform the trick of measuring both total expenditure because these two things are really nearly the same. For an economy as a whole, generally, income must equal expenditure
This is true because: An economy's income is the same as its expenditure because every transaction has two parties a buyer and a seller. Every dollar of spending by some buyer is a dollar of income for some seller
Issues: Households do not spend all of their income; they pay some of it to the government in taxes, and they save some for use in the future. In addition, households do not buy all goods and services produced in the economy; some goods and services are bought by governments and some are bought by firms that plan to use them in the future to produce their own output. General rule of thumb still stands.
The measurement of GDP
Definition of GDP as a measure of total expenditure: the market value of all final goods and services produced legally within a country in a given period of time
GDP is the market value…
Because market prices measure the amount people are willing to pay for different goods, they reflect the value of those goods. If the price of an apple is twice the price of an orange, then an apple contributes twice as much to GDP as does an orange
...of all...
It includes all items produced in the economy and sold legally in the markets. GDP also includes the market value of the housing services provided by the economy's stock of housing such as rent for rental properties and possible rental return for those that have their own home (rent to oneself)
GDP excludes most items produced and sold illegally and does not include goods and services that do not enter the market at all - such as the use of backyard vegetables for the