Professional Documents
Culture Documents
MARKETS
Revenue FOR Spending
GOODS AND SERVICES
•Firms sell Goods and
Goods
•Households buy services
and services
sold bought
FIRMS HOUSEHOLDS
•Produce and sell •Buy and consume
goods and services goods and services
•Hire and use factors •Own and sell factors
of production of production
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GDP and Its Components (2001)
Government Purchases
18%
Investment Net Exports
16% -3 %
Consumption
69%
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Table 2 Real and Nominal GDP
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Table 2 Real and Nominal GDP
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The GDP Deflator
N o m in a l G D P
G D P d e fla to r = ×100
R eal G D P
N o m in a l G D P 20X X
R e a l G D P20X X = ×100
G D P d e f la to r2 0 X X
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Figure 2 Real GDP in the United States
Billions of
1996 Dollars
$10,000
9,000
8,000
7,000
6,000
5,000
4,000
3,000
1970 1975 1980 1985 1990 1995 2000
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Summary
• Because every transaction has a buyer and a
seller, the total expenditure in the economy
must equal the total income in the economy.
• Gross Domestic Product (GDP) measures an
economy’s total expenditure on newly
produced goods and services and the total
income earned from the production of these
goods and services.