ECN 204 Lecture Notes - Lecture 1: Black Market, General Idea, Output Gap
28 Jun 2018
School
Department
Course
Professor
zaAlexandra Karkaby
17/01/18 Week 1
Measuring Economic Activity
Gross Domestic Product
ā Total market value of all final goods and services produced within a country in one year.
ā Main measure of economic output.
ā Final products/services have been purchased for final use and not for any form of resale
to avoid double-counting.
ā financial products (stocks, bonds, etc) are not considered final goods/services.
ā Gross National Product is another measure..
ā allocates production based on ownership of resources.
ā production from a Canadian-owned factory in China will be included in Chinaās GDP and
Canadaās GNP.
Avoiding Double-Counting
ā Only include final sales in calculating GDP
ā GDP can be viewed as a measure of total income.
GDP Per Capita
ā Defined by GDP of a country divided by the Population.
ā Measure of average outcome.
ā Used as an indicator of standard of living when comparing countries.
ā GDP per capita tells us nothing about the distribution of income.
ā itās possible that GDP is increasing even if the vast majority of peopleās incomes are lower.
ā one person could be gaining all the benefit while the rest of the population is worse off.
Purchasing Power
ā In order to use GDP per capita to compare countries in terms of living standards, we
should adjust for these differences in purchasing power.
ā Big Mac Index shows for these differences.
ā Purchasing Power Parity (PPP) exchange rates are adjusted for difference in purchasing
power, rather than converting USD using actual exchange rates.
Calculating GDP
find more resources at oneclass.com
find more resources at oneclass.com
ā GDP can be calculated using either the expenditure approach or the income approach.
āExpenditure Approach ā totals all expenditures (money spent) made for final goods
and services.
āIncome Approach ā totals all income generated by the production of final goods and
services.
The Expenditures Approach
ā GDP can be broken up into four categories of expenditures [aC + I + G + (X - M)]
1. Private Consumption (C)
ā Final goods and services purchased by households.
ā Does not include residential construction.
2. Private Investment (I)
ā Machinery/equipment purchased by business, residential construction, and changes in
inventories (unconsumed output).
ā Does not include financial transactions.
ā Measured in gross terms (i.e., not adjusted for depreciation).
3. Government Expenditures (G)
ā Consumption and investment by all levels of government.
ā Does not include transfer payments (e.g. EI benefits, welfare payments).
4. Net exports (exports minus imports) (X-M)
ā Can be positive, exports > imports, a trade surplus.
ā Can be negative, exports < imports, a trade deficit.
Nominal GDP Vs Real GDP
āNominal GDP ā measures in terms of the price level at the time of measurement
(ācurrent dollarsā).
ā Real GDP ā measures GDP in terms of fixed prices (ābase dollar yearsā).
ā NGDP and RGDP are always equal in the base year.
Calculating Growth Rate
ā The growth rate of a variable X during period t is defined as
find more resources at oneclass.com
find more resources at oneclass.com
Document Summary
Total market value of all final goods and services produced within a country in one year. Final products/services have been purchased for final use and not for any form of resale to avoid double-counting. Financial products (stocks, bonds, etc) are not considered final goods/services. Allocates production based on ownership of resources. Production from a canadian-owned factory in china will be included in china"s gdp and. Only include final sales in calculating gdp. Gdp can be viewed as a measure of total income. Defined by gdp of a country divided by the population. Used as an indicator of standard of living when comparing countries. Gdp per capita tells us nothing about the distribution of income. It"s possible that gdp is increasing even if the vast majority of people"s incomes are lower. One person could be gaining all the benefit while the rest of the population is worse off.
