Class Notes (807,718)
MGEA06H3 (157)
Iris Au (146)
Lecture

# Introduction to Macroeconomics: Math App - Lecture 002

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School
University of Toronto Scarborough
Department
Economics for Management Studies
Course
MGEA06H3
Professor
Iris Au
Semester
Winter

Description
9 January 2013 CHAPTER 20: NATIONAL INCOME [CONT’D] SUPPLEMENTARY A Example #2 Suppose a firm produces \$4000 output. Sells Pays \$1000 as consumption \$1500 to wages \$500 as investment \$200 interest \$500 as government spending \$400 net indirect taxes \$900 as exports \$100 rent \$1000 to other firms as intermediates \$1000 to suppliers for intermediates \$100 as inventories \$400 capital consumption allowance ------------------------------------------------------------------------------------------------------ \$4000 \$3600 What is the firm’s profit? Profit = \$4000 - \$3600 = \$400 Using the expenditure approach, what is the value of total output (IE: the GDE)? NOTE: REFER TO THE SELLS SIDE CDE = C + I + G + NX \$1000 (consumption) + \$500 (investment) + \$500 (government spending) + \$900 (export) + \$100 (inventories) = \$3000 Using the income approach, what is the value of total output? NOTE: REFER TO THE PAYS SIDE, INCLUDE PROFIT BECAUSE IT IS THE INCOME OF THE OWNER OF FIRM INCOME = FACTOR INCOME + NON FACTOR PAYMENT \$1500 (wages) + \$200 (interest – income o f government) + \$400 (profit – income of owner) + \$100 (rent – income of land owner) + \$400 (net indirect taxes) + \$400 (capital consumption allowances) = \$3000 Using the value added approach, what is the value of total output? VALUE ADDED = REVENUE – COSTS OF INTERMEDIATE GOODS \$4000 - \$1000 = \$3000 OTHER ISSUES RELATED TO NATIONAL INCOME Gross National Product vs. Net National Product Net national product (NNP) excludes the amount of the economy’s stock of plants, equipments, and residential structures that wears out during the years:  NNP = Gross national product – Depreciation  NNP = Gross national product – CCA GDP vs. GNP Gross domestic product (GDP) measures the sum of all final goods and services produced within a country. Gross national product (GNP) measures the sum of all final goods and services produced by a country’s residents.  GNP = GDP + Net factor income earned abroad (Factor income earned by Canadians outside Canada – Factor income earned by foreigners in Canada) Example #3 Production in Canada Production in the US 20 units produced by US owned firms 95 units produced by US owned firms 80 units produced by Canadian owned firms 5 units produced by Canadian owned firms Canada US GDP 20 + 80 = 100 95 + 5 = 100 GNP 80 + 5
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