EC202 1nd Edition Lecture 9Outline of Last Lecture I. Gross domestic productOutline of Current Lecture II. Circular flowIII. Measuring equivalentlyCurrent Lecture-circular flow-consumption expenditure: the expenditure by households on newly produced goods and services (not including new home purchases)-investment: business new plant and equipment purchases (including tools, machines, buildings, and other constructions), new home construction, and changes to business inventories-government purchases of goods and services: the expenditure by all levels of government of new goods and services-net exports of goods and services: the value of exports on new goods and services minus the value of imports on new goods and services-to obtain an accurate measure of GDP you add home production that is purchased by foreigners (total exports – new items that home firms sell to the rest of the world)-you also have to subtract home purchases of new goods and services produced in the rest of the world (total imports – items that households, firms and government at home buy from the rest of the world)-net exports = exports – imports-important to include when calculating GDP-measuring equivalentlyThese notes represent a detailed interpretation of the professor’s lecture. GradeBuddy is best used as a supplement to your own notes, not as a substitute.-GDP can be correctly calculated two different ways-1. Method 1: adding up the market values of all the final goods and services produced-2. Method 2: adding up the total amount spent on final goods and services by each of the four groups and subtracting spending on
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