ECON 332 Lecture 2: Lecture #2

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9 Aug 2016
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Lecture #2 18:07
Factors of Production are the productive resources.
GNP
- Only final (not intermediate products) are counted
- Produced by the nation (not foreign)
Workers earn wages, physical capital earns interest, natural
resources (land) earns rent, and entrepreneurship earns profit
Entrepreneurship is the factor that organizes the other 4 factors
4 Major components:
1. Consumption – expenditure by domestic consumers (buying a car)
2. Investment – (not for personal consumption, also unsold
inventories accounted as investment) Ex – stocks, bonds,
investing in capital (building, houses, equipment..)
3. Government Purchases – government transfers are NOT counted (so
no EI, pension counted)
4. Current account balance –
Note: consumption takes up the LARGEST part of the GNP
For the long run we can say that a high degree of investment is good as
opposed to a high degree of consumption (because investment pays off in
long run)
DEPRECIATION is SUBTRACTED from GNP and we get Net National
Product  Depreciation = 2015 GNP – 2014 GNP
GNP does NOT reflect the quality of the output
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