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5. GDP.docx

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University of Waterloo
ECON 102
Maryann Vaughan

GDP January-14-13 2:27 PM GDP: total income of the owners of the factors of production in an economy.  Also measures the total expenditure on the economy's goods and services  Income = Expenditure The Circular- Flow Diagram  Illustrates the macroeconomy Diagram omits:  Government o Taxes o Gov spending  Financial system o savings  The foreign sector o Trade g&s  Describes transactons between households and firms  Top half o Firms and households are bought together to exchange final goods and services  Bottom half o The rolse of the firms and the households are reversed in the factor markets GDP is… … the market value of all final goods and services produced within a country in a given period of time. Market value:  all goods measured in same unit at their market price Final goods and services:  intended for end user  Intermediate goods: used as components of other goods  GDP only includes final goods - they include the value of the intermediate goods used in their production. Goods and Services:  Tangible - bikes, beer  Intangible - haircuts, concerts Produced:  Currently produced and not from the past. Within a Country  Value of production that occurs within a country's borders. o Can be done by foreigners or nationals o GNP is based on production by nationaly owned resources o Canadian companies producing in another country do not add to the canadian GDP In a given period of time  Usually a quarter or 3 months  Annualized GDP o e.g per quarter 0.8%  Multiply by 4  Annualized GDP is 3.3% Components of the GDP  GDP is total expenditure  4 components 1. Consumption (C) 2. Investment (I) 3. Government purchases (G) 4. Net Exports (NX)  GDP = Y  Y = C + I + G + NX  NX = (Exports - Imports) Consumption (C)  Total household expenditure by households  Housing costs o Renters, consumption includes rent payments o Homeowners, the imputed rental value of the house, not mortgage payments or purchase price Investment (I)  Total spending on goods that will be used in the future to produce more goods.  Includes spending on o Capital equipment (machinery) o Structures (factories, new houses, etc)  Housing provides an ongoing service  Becomes part of the capital stock of the economy o Inventories (goods produced but not sold)
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