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Unit 2 Activity 9 All About Gdp Answers.rar

Unit 2 Activity 9: All About GDP

GDP, or gross domestic product, is a measure of the total value of all the goods and services produced and sold in a country during a specific period of time. It is often used to compare the economic performance and well-being of different countries or regions. In this article, we will explain what GDP is, how it is calculated, and what are some of the advantages and limitations of using it as an indicator of economic activity.

What is GDP?

GDP is the sum of the market values of all final goods and services produced within a country in a given period of time. A final good or service is one that is sold to the final user and not used as an input for another production process. For example, a car sold to a consumer is a final good, but a tire sold to a car manufacturer is not. A market value is the price that buyers are willing to pay and sellers are willing to accept for a good or service in a competitive market. By using market values, GDP can aggregate different kinds of goods and services into a single measure.

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GDP can be calculated in three different ways: by adding up the value added by each sector of the economy (the production approach), by adding up the spending by different agents on final goods and services (the expenditure approach), or by adding up the income earned by different factors of production (the income approach). In theory, these three approaches should yield the same result, but in practice there may be some discrepancies due to measurement errors or differences in data sources.

How is GDP calculated?

The most common way to calculate GDP is by using the expenditure approach, which adds up the spending by four main categories: consumption (C), investment (I), government spending (G), and net exports (NX). The formula for GDP using this approach is:

GDP = C + I + G + NX

  • Consumption (C) is the spending by households on goods and services, such as food, clothing, housing, health care, education, entertainment, etc. Consumption accounts for about two-thirds of GDP in most countries.

  • Investment (I) is the spending by businesses on capital goods, such as machinery, equipment, buildings, inventories, etc., that are used to produce other goods and services in the future. Investment also includes spending by households on new residential construction. Investment accounts for about 15-20% of GDP in most countries.

  • Government spending (G) is the spending by the government on goods and services, such as defense, public education, health care, infrastructure, etc., that are provided to the public. Government spending accounts for about 15-25% of GDP in most countries.