GDP or Gross Domestic Product is the market value of the final goods and services produced within a country in a given time period Definition has 4 parts cid 127 Market value final goods and services produced within a country in a given time period Market values the price at which items are traded in the markets Final good is an item that is bought by its final user during a specified time period intermediate good which is an item that is produced by one firm bought by another firm and used as a component of a final good or service Only goods and services produced within a country count as part of that country s GDP GDP measures the value of production in a given time period quarterly Firms sell and households buy consumer goods and services in goods markets The total payment for these goods and services is consumption expenditure When a firm adds unsold output to inventory we can think of the firm a buying goods from itself The purchase of a new plant equipment and buildings and the additions to inventories are investment Governments by goods and services from firms government expenditure Firms in the US sell goods and services to the rest of the world exports and buy goods and services from the rest of the world imports the value of exports minus the value of imports is called net exports Aggregate expenditure equals consumption expenditure plus investment plus government expenditure plus net exports Aggregate income is equal to the total amount paid for the services of the factors of production uses to price final goods and services wages interest rent and profit Domestic product is production within a country Depreciation is the decrease in the value of a firm s capital that results from wear and tear and obsolesce The total amount spent both buying new capital and replacing depreciated capital is called gross investment The amount by which the value of capital increases is called net investment Net investment gross investment minus depreciation the expenditure approach measures GDP as the sum of consumption expenditure C investment I government expenditure G and net exports X M Personal consumption expenditures are the expenditures by US households on goods and services produced in the US and in the rest of the world Gross private domestic investment is expenditure on capital equipment and buildings by firms and the additions to business inventories Government expenditure on G S is the expenditure by all levels of government on goods and services such as national defense and garbage collection net exports of goods and services are the value of exports minus the value of imports income approach measures GDP by summing the incomes that firms pay households for the services of the factors of production they hire compensation of employees is the payment for labor services net operating surplus is the sums of all other factor incomes net interest rental income corporate profits and proprietors income Net interest is the interest households receive on loans they make minus the interest households pay on their own borrowing Rental Income is the pay met for the use of land and other rented resources corporate profits are the profits of corporations some of which are paid to households in the form of dividends and some of which are retained by corporations as proprietors income is the income earned by the owner operator of a business which includes compensation for the owner s labor the use of the owner s capital distributed profits and profit Real GDP is the value of final goods and services produced in a given year when valued at the prices of a reference base year Nominal GDP is the value of final goods and services produced in a given year when valued at prices of that year Real GDP per person is real GDP divided by the population cid 127 cid 127 cid 127 Business cycle is a periodic but irregular up and down movement of total production and other measures of economic activity expansion a period during which real GDP increases Recession is a period during which real GDP decreases its growth rate is negative for at least two successive quarters
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