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ABILITY-TO-PAY PRINCIPLE: A principle of taxation in which taxes are based on the income or resource-ownership ability of people to pay the tax. The income tax collected by our friends at the Internal Revenue Service is one of the most common taxes that seeks to abide by the ability-to-pay principle. In theory, the income tax system is set up such that people with greater incomes pay more taxes. Proportional and progressive taxes follow this ability-to-pay principle, while regressive taxes, such as sales taxes and Social Security taxes, don't.

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Lesson 10: Gross Domestic Product | Unit 3: Two Views of GDP Page: 15 of 25

Topic: Expenditures <=PAGE BACK | PAGE NEXT=>

The four sectors of the economy buy ALL current economic production and when aggregated give us GDP.

The four sectors and their expenditures:

  1. Household: Consumption (C).
  2. Business: Investment (I).
  3. Government: Government Expenditures (G).
  4. Foreign: Net Exports (X-M), the difference between Exports (X) and Imports (I).
Expenditures on GDP: GDP = C + I + G + (X-M)
  • C, I and G buy not just domestic goods and services, but also imports.
  • When we aggregate C, I, G and X we have domestic production plus imports. To measure only domestic production, we subtract imports (M).

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SHUTDOWN RULE

A rule stating that a firm minimizes economic loss by producing no output in the short run if price is less than average variable cost. This is one of three short-run production alternatives facing a firm. The other two are profit maximization (if price exceeds average total cost) and loss minimization (if price is less than average total cost but greater than average variable cost).

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GREEN LOGIGUIN
[What's This?]

Today, you are likely to spend a great deal of time watching infomercials wanting to buy either a set of luggage with wheels or a birthday gift for your aunt. Be on the lookout for rusty deck screws.
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This isn't me! What am I?

Ragnar Frisch and Jan Tinbergen were the 1st Nobel Prize winners in Economics in 1969.
"What gets measured gets done."

-- Peter Drucker, educator

WPI
Wholesale Price Index
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