Chapter One

1. Products that remain unsold are also counted as part of GDP. Specifically, they are classified as additions to business inventory and thus as an implicit form of business expenditure (investment).

2. Ideally, the electric saw would be added to national output when it was first purchased (as investment) and then gradually subtracted from output as it depreciates (that is, as it is itself consumed in the production process). This approach would yield a net measure of national output (i.e., net of depreciation), commonly called net domestic product, or NDP. Because depreciation can be difficult to measure, however, it is often ignored in calculating national output. As a result, economists and policy makers typically rely more ...

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