ECO100Y5 Lecture 14: Measuring the wealth of nations and The cost of livingPremium
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Chapter 7 and 8
Lecture 14 – 2019-01-12
• Study of macroeconomics:
o How the governments manage economies
o Study of economics in a broader scale
• The three important macroeconomic indicators are Gross Domestic Product,
unemployment rate and C.P.I.
Gross Domestic Product (GDP)
• Gross Domestic Product is the value of all goods and services produced in the
value of the economy.
• The goal is to summarize the amount of economic activity in an economy; the most
common measure of going so is the GDP.
• The market value of final goods and services is the value produced in a country in a
• In order for something to be counter towards GDP, it must:
o Have a market (ex: Ask someone to take care of your kids, or even if a family
member does it for you, there is usually no trade of money, therefore it is not
counted in the GDP). For something to be counted it basically needs to be
traded in the market.
o It must, or could be made by the government. If something is made by the
government, even if it is not traded, it is counted towards the GDP (ex:
national security forces, education, free healthcare, etc…) → for such
products, you just ask what is the cost of producing this.
o It does not include the cost of the intermediate goods, only the price of the
final good is counted (ex: cotton → cloth → t-shirt; only the price of the shirt is
counted, and this is in order to not count the price of a good more than once.
• Capital goods are goods that are used in producing other goods, rather than being
bought by consumers. → we calculate them while calculating the GDP.
• The ‘Domestic’ is GDP indicates that all calculations are for those within the country,
• GDP is always calculated within a certain period of time.
• Value added is the sale price – the price of inputs.
• Production and sale of a good or service involves and economic transaction, with
buyers and sellers. Buyers spend, sellers receive and distribute.
• Market value of production = expenditure of buyers = income received by sellers.
• Three ways of calculating GDP:
o Add all expenditures made by buyers of the goods and services
o Add all incomes received by sellers of the goods and services
o Add the value-added from all transactions
• Goods that are made but not sold, they go into the inventory.
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