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Ch. 5 Notes

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ECN 204
Thomas Barbiero

Chapter 5 Measuring the Economy’s output (Pg. 97) Gross Domestic Product (Pg. 98)  Main measure of economy’s performance  Monetary measure of nation’s output  Form of aggregate output  Service or product counts towards GDP for country it was built/provided in Monetary Measure  Price/Monetary value shows relative worth  Ex. Sofa vs. Computer Avoiding Multiple Counting (pg.99)  All services and products must only be counted once  To avoid multiple counting GDP only takes into account Final goods  Final Goods are goods and services purchased for final use and not for resale or further processing/manufacturing  Intermediate Goods are products that are purchased for resale or further processing/manufacturing  Including both types of goods would be Multiple counting  Value of final goods includes intermediate goods  Value Added is the value of the product sold by a firm less the value of the products purchased and used by the firm to produce the product. GDP Excludes Nonproduction Transactions:  Certain monetary transactions don’t count towards GDP because they don’t involve final goods: 1. Financial Transactions:  Public Transfer Payments: Social Insurance, welfare, unemployment. Recipient don’t add to CURRENT production  Private Transfer Payments: Monetary gifts, Parents give cash to kid.  Stock Market Transactions: Buying and selling of stocks and bonds 2. Second Hand Sales:  As soon as it has been bought it is considered used. Used items don’t contribute to GDP at all. Two ways of calculating GDP: Expenditures and Income (Pg. 101) 1. Expenditure Approach: The method to measure GDP that adds up all the expenditures made for final goods and services. ADD THEM FOR ANSWER Personal Consumption Expenditures (C) – Household items (car, fridge, TV, bread, milk, toothbrush, doctor, mechanic, and barber) Gross Investment (Ig) – Business items 1. Final purchases (equipment tools machines) 2. Construction 3. Changes in inventory Government Purchases (G) – expenditures for final g/s governments consume in providing public services (Includes labor, No transfer payments [insurance/welfare/pension], Federal/provincial/municipal) Net Exports (Xn) – Very Significant n= exports (X) – imports (M)  Net Investment inclu
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