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20 votes

Why do we need to "get the economy moving again"?

Both Alice and Kate have bills to pay, regardless of whether they are earning money or not. Restaurants and salons have to pay rent and maintenance on their properties whether they are in business or ...
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17 votes
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Why are imports subtracted from GDP?

When we import something, we consume it. So when calculating consumption we are bound to count import as a positive component of GDP. Since it is not (we did not produce imports domestically), we ...
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13 votes
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What Level of Government Debt to GDP Ratio is Sustainable?

As you have pointed out: where it comes from is very important. As to the Japanese situation it is quiet different from the US position from example. In fact most of the Japanese debt is owned by ...
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  • 583
13 votes

Why do we need to "get the economy moving again"?

Trade is good because it creates efficiency. Alice has invested in her kitchen and knows the supply chain of ingredients, and due to the efficiency of her business, she can sell a meal for $50. If ...
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11 votes
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How does buying/selling houses affect the GDP?

There is only a change in GDP to the extent there are market goods and services used in the sale and only those goods and services are counted. The actual sales revenue are irrelevant. For example, ...
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11 votes

What is the Gross Domestic Product (GDP)?

Gross Domestic Product As per wikipedia, we learn that the OECD, an organisation of international recognition for economic policies and macroeconomy, defined the GDP as Gross domestic product is an ...
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10 votes
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Is investment in real estate a real investment?

Purchasing new homes would count as an investment. According to Blanchard et al. Macroeconomics: a European Perspective pp 568 in glossary investment is defined: Investment (I): Purchases of new ...
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  • 41.5k
9 votes

Why did the Federal Reserve change the data about USA GDP?

This happens all the time and is normal. It's due to measurement error. It is hard to measure these things in real time and as time goes by more data comes in, which allows measurement of GDP and ...
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  • 5,394
9 votes

What Level of Government Debt to GDP Ratio is Sustainable?

I don't think you can sensibly discuss this without including two additional factors: what is the prevailing interest rate? is the debt in local or foreign currency? The first affects the cost of ...
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  • 368
8 votes
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What is the purpose of measuring GNP?

In 1991, when the Bureau of Economic Analysis made the switch from GNP to GDP as "their primary measure of U.S. production," they indicated the continued importance of GNP this way: GNP, however, ...
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  • 725
8 votes
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On the relationship between income distribution and GDP

You assume that higher spending causes higher GDP. This is not necessarily true. Saving income will increase GDP through investments (unless you're in a Keynesian trap). Think about the most ...
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  • 10.4k
8 votes
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Is economic growth measured in real GDP or in real GDP per capita?

Usually GDP growth rates are publicly talked about in real terms but not per capita, see for example World Bank where, above the relevant table we read Annual percentage growth rate of GDP at ...
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8 votes

Can a closed economy flourish?

It depends on what you mean by "sustained growth" and "flourishing markets". Clearly the Earth as a whole is a big market. If you do not look at human made borders: the global economy is currently ...
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  • 26k
8 votes

Why do we need to "get the economy moving again"?

Let's consider another example. I'm an automotive manufacturing service engineer; I build and repair machines that are used to build and repair cars. I use the money I earn to buy a variety of things, ...
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8 votes
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Why does the inflation not follow the money supply?

This is because classical economic theory absolutely does not say that: inflation occurs when the money supply is increased faster than the economic growth. Even in most basic 101 models inflation ...
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  • 41.5k
7 votes

Why are imports subtracted from GDP?

One way to navigate rather safely in National Accounting Identities, is to put on the one side "what you have available" and on the other side "what you do with it". In the specific case ($M$ being ...
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7 votes

Why do we change the base year?

The change in base year keeps the dollar values meaningful to contemporary readers. If we still used, say, 1900 as the base year for US GDP, the dollar values for today would be so tiny they would ...
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7 votes

Why do we need to "get the economy moving again"?

Most people aren't Alice and Kate. GDP is a measure of the total goods and services produced within an economy. The point is measuring total production, not measuring how much money is changing hands....
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  • 420
6 votes
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If all quantities produced rise by 10 percent, and all prices fall by 10 percent, which of the following occurs?

It helps to write out things as (simple but) proper equations. Denote production as $Y$ and prices as $P$ It is given that $$Y_{t+1} = 1.1 Y_t \\ P_{t+1} = 0.9 P_t$$ Nominal GDP is given by $P_t ...
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  • 10.4k
6 votes

Why are "transfer payments" not part of GDP?

Transfer payments aren't included in GDP to prevent double-counting. The reason the author's question is troubling you is because the answer externalizes everything that happens after the payment ...
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  • 186
6 votes
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How can I best estimate a company's contribution to GDP?

As a comment noted, value-added is the way to go. And how do we measure value added at the level of an individual firm? It is $$\text{Value-added} = \text{Wages and Salaries incl. Insurance}+\text{...
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6 votes
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How would gross world product look like if fossil fuel is treated as capital and not as income?

There is a large literature considering the depletion of natural resources, including fossil fuels, in relation to GDP. Some writers explicitly refer to such resources as a kind of natural capital. ...
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  • 6,693
6 votes
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How is the GDP growing when nothing else seems to be?

There's a bit to unpack here. Consistent wage growth seems in line with rising GDP. So does a steadily falling unemployment rate. For other economic measures, the stock market is a whole other ...
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  • 6,409
6 votes

GDP doesn't add up in FED data - why?

It is because you are using wrong data, in fact the two series you plot never overlap save for some crossing points, and given you are using wrong datasets its actually weird why they follow each ...
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  • 41.5k
5 votes
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Financial investment in the composition of GDP

What you're describing is a change in the capital account, not in GDP. They're related through the balance of payments, in that if a country is running a current account deficit (usually arising ...
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5 votes

On the relationship between income distribution and GDP

While this is too broad a field and any study done on this would involve an extent of speculation. However the work by Berg and Ostry in this work have concluded the following Do societies inevitably ...
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  • 316
5 votes
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Where do remittances come into play in the formula for GDP?

Gross domestic product (GDP) is the total value of output in an economy, this can be measured only by Output using this formula. This method uses GDP = C + I + G + (X-M) where ...
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  • 316
5 votes

On the relationship between income distribution and GDP

The question itself has merit, but isolating the variables seems tough to me. The beginning of such a study would start with the Gini coefficient which is a numerical method of determining income ...
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