Gross Domestic Product : It is defined as the money value of all finished goods and services that are produced by the normal resident and nonresident of the country inside the boundary of a country usually for one year. Consumption Level ( C ): It is one of the largest components of GDP .The individual consumption Depends on the disposable income. Consumption Function: It shows relationship between disposable income of an individual and the consumption level. The formula to calculate consumption function is, Here, C is consumption level. is autonomous consumption. is disposable income MPC is marginal propensity to consume. Planned Aggregate Spending: It is the summation of consumption level in an economy and the planned investment. The formula to calculate planned aggregate spending is, Here, C is consumption level. is the planned investment spending. AE is the planned aggregate spending. Unplanned Inventory Investment: When the real sales are greater or lesser than the amount of sales which are estimated by the firm. Then it leads to unplanned inventory investment. The formula to calculate unplanned inventory investment is:

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Chapter 11, Problem 9P

To determine

Gross Domestic Product:

It is defined as the money value of all finished goods and services that are produced by the normal resident and nonresident of the country inside the boundary of a country usually for one year.

Consumption Level ( C ): It is one of the largest components of GDP .The individual consumption Depends on the disposable income.

Consumption Function: It shows relationship between disposable income of an individual and the consumption level.

The formula to calculate consumption function is,

Here,

C is consumption level.

is autonomous consumption.

is disposable income

MPC is marginal propensity to consume.

Planned Aggregate Spending: It is the summation of consumption level in an economy and the planned investment.

The formula to calculate planned aggregate spending is,

Here,

C is consumption level.

is the planned investment spending.

AE is the planned aggregate spending.

Unplanned Inventory Investment: When the real sales are greater or lesser than the amount of sales which are estimated by the firm. Then it leads to unplanned inventory investment.

The formula to calculate unplanned inventory investment is:

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Active Learning 4: Computing GDP Cookies 2021 (base year) 2022 2023 P Q P Q P Q $1 900 $2 1,000 $3 1,250 200 $1,200 210 Smartphones $900 185 $1,000 Use the above data to solve these problems: A. Compute nominal GDP in 2021. B. Compute real GDP in 2022. C. Compute the GDP deflator in 2023. Mankiw, Principles of Macroeconomics, 10th Edition. 2024 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 34 =4

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