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Chapter 20 notes

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ECON 102
Maryann Vaughan

Gross Domestic Product GDP is the market value of all final goods and services produced in a country in a given time period. Market Value: goods and services are valued at their market price. Adding up the total market value will produce the total value of output in dollars. Final Goods and Services: An item bought by its final user during a specified time period. It contrasts with an intermediate good, which is an item used as a component of a final good or service. Excluding the value of intermediate goods and services avoids counting the same value more than once. Produced Within a Country: GDP measure production within a country - domestic production. In a Given Time Period: GDP measures production during a time period, normally a year or a quarter of a year. GDP measures the value of production; equal to the total expenditure (on final goods) and total income The equality of income and value of production shows the link between productivity and living standards. Consumption expenditure is the total payment for consumer goods and services, shown by the red flow labelled C. (when consumers purchase goods/services) Investment is the purchase of new plant, equipment, buildings and the additions to inventories. (when producers purchase goods/services). Government expenditure is the government's spending on goods and services in the economy. Governments finance their expenditure with taxes and pay financial transfers to households, such as unemployment benefits, and pay subsidies to firms. These transfers are not part of the GDP, only government spending. Exports and Imports are goods and services sold and bought from the rest of the world. Net Exports is the value of exports minus the value of imports. (X-M) GDP = Consumption + Government Expenditure + Investment + (Exports - Imports) GDP = Wages + Interest + Rent + Profit For GDP, Income is equal to Expenditure Depreciation is the decrease in value of a firm's capital that results from use and obsolescence. Gross Investment is the total amount spent on purchases of new capital and on replacing depreciated capital. Net investment is the increase in value of the firm's capital after accounting for depreciation Measuring Canadian GDP Real GDP is the value of final goods and services produced in a given year when valued at the prices of a reference base year. Currently, the reference base year is 2002 and we describe
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