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McConnell Brue Macroeconomics 16th ed- Chapter 7

Terms

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gross domestic product (GDP)
the total market value of all final goods and services produced in a given year.
Intermediate goods
goods and services that are purchased for resale or for further processing or manufacturing. Not used to calculate GDP.
Final goods
goods are services that are purchased for final use by the consumer, not for resale or for further processing or manufacturing. Used to calculate GDP.
3 types of purely financial transactions
1) Public Transfer Payments
2) Private Transfer Payments
3) Stock Market Transactions
Gross Private Domestic Investment (Ig) vs. Net Domestic Investment
Net is gross less depreciation
Expenditures Approach for GDP (the equation and variables)
GDP = C + Ig + G + Xn
<consuming investors govern xerox>
C = Personal consumption expenditures
Ig = Gross private domestic investment
G = Government purchases
Xn = Net Exports
3 parts of Corporate Profits
1)Corporate income taxes
2)Dividends
3)Undistributed corporate profits
National Income
all the income that flows to American supplied resources, whether here or abroad.
Indirect Business Taxes
include general sales tax, excise tax, business property taxes, license fees, and customs duties.
Net Foreign Factor Income
The income Americans gain from supplying resources abroad versus the income foreigners gain by supplying resources in the U.S. The difference is added to GDP.
Income Approach for GDP
PRICE IND (ex)
The sum of:
1) Employee Compensation
2) Rent
3) Interest
4) Corporate Profits
5) Proprietor's income
6) Indirect Business Taxes
7) Depreciation
8) Net foreign factor income
Income Approach for NDP
PRICE
The sum of:
1) Employee Compensation
2) Rent
3) Interest
4) Corporate Profits
5) Proprietor's income
National Income (NI) from NDP
= NDP - IND(ex)
6) Indirect Business Taxes
7) Net foreign factor income
8) Depreciation
Personal Income (PI) from NI
= NI
- SS contributions
- Corporate income taxes
- Undistributed corporate profits
+ Transfer payments
= (-USC + Tx)
Disposable Income (DI) from PI
= PI - personal taxes
= (PI - Tax)
GDP (Gross Domestic Product)
The total dollar value of all goods and services produced in a country in one year. It is a monetary measure that is based on current market values
Real Change
The change in the amount of actual products that are produced. Inflation is calculated and a price index is used.
Nominal Change
The price value of the product changes but the total number of products does not. This does account for inflation.
Rules for Calculating GDP
1) Real or Nominal GDP? 2) Only Productive transactions are included in calculation. 3) No secondhand sales are counted. 4) No stock sales 5) No transfer of money 6) No intermediate goods (only final goods are counted)
GDP Expenditures Approach (GDP =)
= C + Ig + G + Xn C = Personal Consumption Expenditures Ig = Investment (business purchases of real capital) G = (Govt. Expenditures) Xn = Net Exports (eXports - iMports {X - M})
Income Approach (GDP = NI)
NI = (Wagesp + Rentp + Interestp + Profits) - (IBT + Cfc + Ffn) NI = National Income (All income earned by LLCE)
Net Investment (Inet)
Investment - Depreciation
Personal Income (PI)
Income + Transfers all Income received whether earned or unearned.
Disposable Income (DI)
= PI - Taxes *Only calculates saving and spending. Also = C + S
Indirect Business Taxes (IBT)
General sales taxes, excise taxes, business property taxes, license fees, and customs duties.

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