# Macro Economics

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Production & National Income Accounting Principles:

GDP is measured using 2 separate approaches:
1) Expenditure approach: the amount of money you pay someone to do a job
2) Factor Income approach: the amount of money someone earn to do a job

-Even though they are independent approaches to the measurement of prod., theoretically they are equivalent --> lead to same answer.
-Any difference that arises between the 2 approaches is called statistical discrepancy or residual error of estimate= well under 1% of GDP.
-to produce a single value for GDP the statistical discrepancy is divided into 2, 1/2 is added to the lower estimate while ther other 1/2 is subtracted from the higher estimate.

-measurement of GDP is based on a very simple principle: value of prod. is amount of money you spend to buy it. Conversely, the value of a prod. is the amount of money you were paid to produce it.

-to find GDP using expenditure approach: add together total amount of money that is spent by all sectors in the economy to purchase the nation’s production.
-There are 4 major components of aggregate expenditure: personal consumption expenditures (C) fixed capital investment expenditures (I) current government expenditures (G) net exports (X-M)

Personal consumption expenditure (C): money spent by households to buy newly produced final goods and services such as food, clothing, appliances, shelter, transportation, entertainment, and other household living expenses.
Fixed capital investment (I): money spent by firms & government to buy newly prod. machinery & equipment, including tools , trucks, & scientific instruments as well as money spent on the construction of residential, commercial, industrial and institutional buildings including diff. structures (Airport runways, port facilities, pipe lines, power lines)
Current government expenditures (G): money spent by

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