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Lecture 2

ECON282 Lecture 2: Chapter2

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University of Alberta
Alexander Gainer

Chapter2: Measuring the Economy National Income Accounting The national income accounts are an accounting framework that give a picture of Canadian economic developments; they focus primarily on production and income. This framework is how Statistics Canada calculates gross domestic product (GDP). Gross Domestic Product A nations GDP is the market value of final goods and services newly produced within a nation during a certain period of time. GDP is represented as Y in this course. There are three approaches used to measure GDP: 1. Product Approach 2. Expenditure Approach 3. Income Approach Problems with GDP Some goods or services are not sold in markets, so they do not have a market value. The underground economy keeps illegal and legal activities hidden from the government. There are no market values for government services such as roads and police; thus they are valued at cost. They are important of the value in a society. Eg, freedom of speech, happiness but it wont take account into GDP bc it does not have a market value GDP only captured the things : final goods and services. Home production will not be captured in GDP such as your wife stays at home for taking care your children. But, if you hire an nanny to take care your childrean it is count into GDP bc it involes the trade in the market. Home production includes all services produced outside the market, such as the services a homemaker provides to the homemakers fmaily Product Approach The product approach measures how much output (goods and services) is newly produced within a country. It excludes goods or services used in intermediate stages of production; it is also known as the value added method. It excludes used goods and intermediate goods to avoid double counting. Product approach = gross value of output value of intermediate output Intermediate goods are those that are used up right away in the production of other goods. Capital goods are manmade goods used to produce other goods. They are different from intermediate goods because they are not used up right
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