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ECO209 - Sep 17.docx

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ECO209 Sep 17 Lecture 2 Slide 3 • Production: value added; contribution o Production/service sector • Expenditure: purchases of finite goods • Income: how those who contributed are compensated Slide 4 • Labour, capital, land • Factors of production are always owned by individuals • In absence of gov’t, all approaches gives the same result o Closed economy Slide 5 • Current output o Value of the car (excluded) + service(commission) provided by the dealer • Market price + indirect taxes (sales, excise tax and subsidies) o Ticket effect • Goods exchanged in the market o Home production is not counted o Exceptions:  Illegal markets (not counted directly)  Ex: Columbia • Estimate by the national accounts • The amount then can be added to GDP  Or: money laundering • Source is unclear • Cheese: overestimation o Renting vs. owning  Imputed rent to owners’ occupied houses • 1. Two identical economies o More renters vs more owners o The economy with more renters would appear to be bigger • 2. Transfer of ownership o Decreases GDP  Meaningful comparison between two economies or different Periods • Increase in value of a painting: capital gains o Not a result of production process o No economic activity Slide 6,7,8 – Production Approach • Final vs. intermediate goods • Only the value added o Revenue minus everything bought from another firm • Ex 1 o Bread is the only final good o Contribution to GDP is only $1000 o Value of output: $1600 – flour and wheat are double counted o Value added: • Final good is hard to define Slide 10 – Expenditure approach • Take into account who is buying the good (NX) Slide 11 – Consumption expenditure • Durable good
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