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The size of a nation's economy is commonly expressed as it's gross domestic product (GDP), which measures the value of the output of all goods and services produced within the country on a year. You measure it by taking the quantities of all the goods and services produced, multiplying them by their prices, and summing the total.
- The size of a nation’s economy is commonly expressed as its gross domestic product, or GDP, which measures the value of the output of all goods and services produced within the country in a year.
- *GDP is measured by taking the quantities of all final goods and services produced and sold in markets, multiplying them by their current prices, and adding up the total.
- GDP can be measured either by the sum of what is purchased in the economy using the expenditures approach or by income earned on what is produced using the income approach.
- The expenditures approach represents aggregate demand (the demand for all goods and services in an economy) and can be divided into consumption, investment, government spending, exports, and imports. What is produced in the economy can be divided into durable goods, nondurable goods, services, structures, and inventories.
- To avoid double counting—adding the value of output to the GDP more than once—GDP counts only final output of goods and services, not the production of intermediate goods or the value of labor in the chain of production.
- The gap between exports and imports is called the trade balance. If a nation's imports exceed its exports, the nation is said to have a trade deficit. If a nation's exports exceed its imports, it is said to have a trade surplus.
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