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Measuring Total Output and Income

6.1 Measuring Total Output

ANSWER TO TRY IT! PROBLEM

  1. GDP equals $1,200 and is computed as follows (the numbers in parentheses correspond to the flows in Figure 6.5 "Spending in the Circular Flow Model"):

    2. Personal consumption (1) $1,000
    Private investment (2) 200
      Housing 100
      Equipment and software 60
      Inventory change 40
    Government purchases (3) 100
    Net exports (4) −100
    GDP $1,200

    Notice that neither welfare payments nor Social Security payments to households are included. These are transfer payments, which are not part of the government purchases component of GDP.

  2. Here is the table of value added.

    Good Produced by Purchased by Price Value Added
    Raw milk Dairy farm Dairy $1,000 $1,000
    Cream Dairy Ice cream maker 3,000 2,000
    Ice cream Ice cream manufacturer Grocery store 7,000 4,000
    Retail ice cream Grocery store Consumer 10,000 3,000
        Final Value $10,000  
        Sum of Values Added   $10,000