GROSS DOMESTIC PRODUCT Definition: the market value of all final goods and services produced within a nation in a year Included in GDP (the Expenditure Approach): Consumption (C): household spending on goods and services; accounts for about 70% of GDP Gross Private Investment ([,): includes business spending on capital, all new construction (inctuding homes), and changes in inventories Government spending (G) on goods and services Net exports (X-M) Excluded from GDP: ary Used goods Intermediate goods Purely financial transactions, like stocks and bonds ‘Transfer payments, like social security, or child support payments Non-matket production (do-it-yourself work) Underground or black market activity ‘The Income Approach to Calculating GDP: Calculate national income, which equals wages* rent+interest+ profits Add the capital consumption allowance (the allowance for depreciated capital) Subtract subsidy payments made by the government (a subsidy payment made to a farmer adds to his income but is not made in exchange for goods or services) ‘Add net foreign factor income (must include the amount eared by foreigners in the US and subtract the amount eamed by Americans abroad) 40