Value Added Approach Rio Hondo College增值的方法瑞航德学院.pptVIP

Value Added Approach How to measure GDP using the Value Added approach? What Is GDP? GDP is the nation’s expenditures on all FINAL goods and services produced during the year at market prices. Two Things To Avoid Intermediate goods Transfer Payments Two Things to Avoid when Compiling GDP Multiple counting Only expenditures on final products – what consumers, businesses, and government units buy for their own use belong in GDP Intermediate goods are not counted Used goods are not counted Two Things to Avoid when Compiling GDP Transfer payments Transfer payments are not payments for currently produced goods and services When they are spent for final goods and services they will go into GDP as consumer spending Financial transactions don’t go into GDP Why only Final Goods Counting the sale of final goods and intermediate products would result in double and triple counting. What is counted? What is not? This is confusing! The tires that come with the car is not counted as a final good However if you get a flat and buy the same tire it is counted as a final good No Problem! To correct for this problem economist have created the Value Added approach. Value Added Approach Eliminates Double Counting The Value-added Approach to Measuring GDP Calculating GDP GDP can be calculated three ways: add up the value added of all producers; add up all spending on domestically produced final goods and services, leading to the equation: GDP = C+I+G+X-IM; add up the all income paid to factors of production Calculating GDP * 9-3 Copyright ?2002 by The McGraw-Hill Companies, Inc. All rights reserved. Only the value of the final sale is counted. The cost of the parts is included in the final sale price So they are not counted when the manufacturer buys them. 9-25 Production Generated Added Farmer harvest wheat $100 $100 Miller makes into flour 200