Chapter 7: Measuring Domestic Output and National Income

Expenditures Approach

The method that adds all expenditures made for final goods and final services to measure the gross domestic product.

Income Approach

The method that adds all the income generated by the production of final goods and final services to measure the gross domestic product.

Gross Domestic Product (GDP)

The total market value of all final goods and final services produced annually within the boundaries of a nation.

Intermediate Goods and Services

Products that are purchased for resale or further processing or manufacturing.

Final Goods and Services

Products that have been purchased for final use (rather than for resale or further processing or manufacturing.)

Nondurable Goods

A consumer good with an expected life (use) of less than three years.

Durable Goods

A consumer good with an expected life (use) of three or more years.

Services

An (intangible) act or use for which a consumer, firm, or government is willing to pay.

Government Purchases (G)

Expenditures by government for goods and services that government consumes in providing public services as well as expenditures for publicly owned capital that has a long lifetime; the expenditures of all governments in the economy for those final goods and final services.

Gross Private Domestic Investment (Ig)

Expenditures that increase the nation's stock of capital, which is the collection of physical objects and intangible ideas that help to produce goods and services. Includes spending on final purchases of plant, machinery, and equipment by business enterprises; residential construction; changes in inventories; expenditures on the research and development (R&D) of new productive technologies; and money spent on the creation of new works of art, music, writing, film, and software.

Net Exports (Xn)

Exports minus imports.

Net Private Domestic Investment

Gross private domestic investment less consumption of fixed capital; the addition to the nation's stock of capital during a year.

Gross Output (GO)

The dollar value of the economic activity taking place at every stage of production and distribution. By contrast, gross domestic product (GDP) only accounts for the value of final output.

Personal Consumption Expenditures (C)

The expenditures of households for both durable and nondurable consumer goods.

National Income Accounting

The techniques used to measure the overall production of a country's economy as well as other related variables.

Multiple Counting

Wrongly including the value of intermediate goods in the gross domestic product; counting the same good or service more than once.