More on final and intermediate GDP contributions

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More on final and intermediate GDP contributions발음듣기

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In the last video, we touched a bit on the idea of final goods and services.발음듣기

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And we talked about the situation in which in the given period that we're calculating GDP.발음듣기

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So this might be in a given year.발음듣기

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If we're essentially starting from scratch and we put in the labor, the land, we get the cotton.발음듣기

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The market value of that is $10, that raw cotton.발음듣기

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And then we're able to turn that into thread with a market value of $20 and we keep going.발음듣기

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And we keep on going and going all the way until we get the finished product of jeans, which has a market value of $50, we saw in the last video that the contribution to GDP will just be this final product.발음듣기

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It will just be the $50 worth of jeans.발음듣기

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And we know its value based on its market value, what people are willing to pay for it.발음듣기

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We would not count all of these intermediary goods.발음듣기

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But that probably raised the question in your head.발음듣기

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What if all of this does not happen in a given year?발음듣기

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What if the period ends, what if the year were to end right over here?발음듣기

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So we're thinking about GDP in a year, but we could think about GDP in a quarter or whatever.발음듣기

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What if the period under question ends over here?발음듣기

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So this is period one.발음듣기

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Let's call this period one.발음듣기

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And then this is going to be period two.발음듣기

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So in period one, we get to the point that we have a market value $20 worth of threat.발음듣기

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And then period two, we get all the way to the jeans.발음듣기

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So this is period two over here.발음듣기

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So this might be one year.발음듣기

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And then this might be the year after that.발음듣기

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What would happen is in period one, we would look at this good, this intermediary good that's sitting in someone's inventory someplace that's getting ready to be used to get more finished, we would say this is the contribution to GDP.발음듣기

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And it would be considered an investment because it's going to be used in the future to produce other things.발음듣기

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So in period one, the contribution will be $20.발음듣기

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And then in period two, the contribution won't be just the $50.발음듣기

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So we do get to a point that the jeans are worth $50.발음듣기

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But so that we haven't double counted the same $20 in both period one and period two, we'll subtract out what our starting point was.발음듣기

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Or essentially, we'll subtract out the contribution, the intermediary products that were already counted in previous periods.발음듣기

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Or you could say, we'll subtract out the market value of the inputs at the beginning of that period.발음듣기

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So you'd say, $50 minus the $20.발음듣기

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And so you would get a contribution to GDP by taking this $20 intermediary good and turning it into a $50 final good, the contribution to GDP in period two would be $30.발음듣기

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