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University of Toronto Scarborough
Economics for Management Studies
Ata Mazaheri

ECMA06 – National Income 1 ECMA06 – LEC 01, LEC 02 & LEC 60 Introduction to Macroeconomics: A Mathematical Approach Winter 2012 ECMA06 – National Income 2 Introduction – About the Course Professor: Iris Au Class format: *Lecture: LEC 01 – Monday & Wednesday 2:00pm – 3:30pm, IC 130 LEC 02 – Monday & Wednesday 3:30pm – 5:00pm, IC 130 LEC 60 – Online Tutorial: Throughout the week (starting next week) * Same as ECMA04, lectures will be taped and available online. ECMA06 – National Income 3 Need help for the course?  The TAs are your first option.  TA office: IC 225 Teaching Assistant Office hours Henry Cao Monday 12:00noon – 2:00pm, Wednesday 2:00pm – 4:00pm Amy Chen Tuesday 2:00pm – 4:00pm, Thursday 11:00am – 1:00pm Yan Yan Chen Friday 11:00am – 12:00noon Igor Mihajlovic Tuesday 1:00pm – 2:00pm, Thursday 1:00pm – 4:00pm Edward So Monday 11:00am – 12:00noon, Tuesday 11:00am – 1:00pm Huiguan Sun Monday 2:00pm – 4:00pm, Wednesday 12:00pm – 2:00pm Professor Au’s office hours:  Office: IC 286  Office hours: Monday, 11:00am – 1:00pm Tuesday, 1:00pm – 2:00pm Friday, 11:00am – 12:00noon Course Coordinator: Arjuna Thaskaran Email [email protected]  If you have any questions about viewing the online lectures and/or the midterm grades, please contact her. ECMA06 – National Income 4  Recommended Text: Christopher T. S. Ragan and th Richard G. Lipsey, Macroeconomics, 13 Canadian edition, Pearson Addison Wesley, 2011 Grading: Midterm 35% of the overall grade Final Exam 65% of the overall grade Bonus Marks ** a maximum of 3%  If you do better in the final exam, your midterm marks will be replaced by your final exam marks (i.e., your final exam will count for 100%). **More on the Bonus Marks You may earn a maximum of 3% bonus marks for this course by participating in voluntary studies. Sign up at the following link: http://utsc-management.sona-systems.com Questions? email: [email protected] How this work? Suppose after writing the final exam, your course mark is 82% (A-). If you participate in the voluntary research studies and earn 3%, then FINAL overall mark will be 85% (A). ECMA06 – National Income 5 Grade Distribution – Winter 2011: Grade % of class 80% – 100% 28% 70% – 79% 19% 60% – 69% 21% 50% – 59% 15% 0% – 49%* 16% Class average C+ (68%) * Including those who did not write the final exam. ECMA06 – National Income 6 Introduction & National Income Outline  What is macroeconomics?  National income:  3 approaches to measure national income.  Gross national income vs. net national income.  GDP vs. GNP.  Nominal GDP vs. Real GDP.  GDP deflator. ECMA06 – National Income 7 What is Macroeconomics?  While microeconomics is about a specific market, macroeconomics is about the economy as a whole (i.e. the aggregates).  Macroeconomics is not simply a matter of adding things up, because the dynamics are different, so we need a different way than microeconomics to look at aggregate behaviour.  In macroeconomics, we are interested in issues like: national income, unemployment rate, inflation rate, the exchange rate, etc. ECMA06 – National Income 8 National Income – GDP Why We Want to Measure Output?  Output measures the country’s economic activity – what kind of goods and services we produced? What are the levels of production?  A simple way to measure our standard of living and allows us to compare it to other countries. How To Measure Aggregate Output  We call the aggregate output as Gross Domestic Product (GDP) – the total value of goods and services produced in the economy during a given period.  There are 3 ways to measure GDP: 1)The expenditure approach Use by the government 2)The income approach 3)The value added approach ECMA06 – National Income 9 The Expenditure Approach  The expenditure approach, sometime called gross domestic expenditure (GDE), sums up the expenditure needed to purchase the final output produced during a given period.  Total expenditure is the sum of 4 major categories: 1)Consumption (C) – spending by households on goods and services. 2)Investment (I) – spending on goods that are not for present consumption. There are 3 types of investment: i) Business fixed investment – the purchases of capital equipments, machinery and production plants. ii) Residential investment – the building of new houses. iii) Inventory investment – the change in the quantity of goods that firms hold in storage, including materials and supplies, work in process, and finished goods. 3)Government spending (G) – spending on goods and services by different levels of government, exclusive of government transfer payment. ECMA06 – National Income 10 4)Net exports (NX), NX = Exports (X) – Imports (IM) Why net exports not exports? GDP from the expenditure approach = C + I + G + NX GDP, Expenditure Base, at Market Prices, $ millions, 2010 Consumption 940,620 Private investment 293,447 Government spending 420,857 Exports 478,132 Imports 508,653 Statistical discrepancy 205 GDP 1,624,608 Source: Statistics Canada. ECMA06 – National Income 11 The Income Approach  The income approach looks at all the incomes earned by Canadians as a result of production.  It takes into account of the followings:  Factor incomes – wages, salaries, interest, business profits.  Non-factor payments – indirect taxes and subsidies, capital consumption allowances (CCA), inventory valuation adjustments (IVA) ECMA06 – National Income 12 GDP, Income Base, at Market Pr
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