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PSU ECON 104 - How to calculate GDP

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Econ 104 1st Edition Lecture 6 Outline of Last Lecture I. The Labor Market – A factor MarketII. The basic circular flow: a simple Macro Economy III. Real World Circular FlowIV. Measuring Total Production in the Real WorldOutline of Current Lecture I. Expenditure Approach to Calculation GDPII. Fun Facts about GDPIII. Income Approach to Calculating GDPIV. Production Approach to calculating GDPCurrent LectureI. Expenditure Approach to Calculation GDPa. GDP = C + I + G + NXi. C = household expenditures (consumption)ii. I = Investment spending by firms on new plant and equipment (capital goods) and changes in inventories; spending by HH’s on new homes1. Now including research and development costs2. Also includes inventories (goods that have not been sold yet)iii. G = Government expenditures (federal, state, local)iv. NX: X-M (exports minus imports) aka net exportsII. Fun Facts about GDPa. Durable goods: last for 3+ years b. Nondurable goods: doesn’t last for 3+ yearsc. Services are the greatest household consumption d. Consumption makes up 70% of the GDPIII. Income Approach to Calculating GDPa. GDP=national income + depreciation i. National income = wages + rents + profits + net interest + indirect business taxesThese 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.1. Net interest = interest on saving – interest on debt2. Indirect Business Taxes: Sales Taxesii. Depreciation: value of worn out machinery, equipment, and building is depreciation IV. Production Approach to calculating GDPa. GDP = (Price X Quantity)i. This is done for each


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PSU ECON 104 - How to calculate GDP

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