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EC140 Lecture Notes - Intermediate Good, Income Approach, Xm Satellite Radio

Course Code
Justin Smith

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Measuring GDP and Economic Growth
GDP and its Importance
- Main measure of economic well-being and standard of living
- Can be compared with other countries
- Can be compared within a country during a different time period
- Measures total value of a production in a country
- GDP is equivalent to total expenditure and income of a country
- GDP is not 100% accurate of a country’s economic well-being
Gross Domestic Product
- Market value of all final goods and services produced in a country in a
given time
- 4 key parts of GDP:
o Market Value
o Final Goods and Services
o Produced Within a Country
o In a Given Time Period
Market Value
- Final goods and services are valued at their market value
- Market value is used because comparing the same amount of different
units is too hard
o Ex. You can’t compare 5 computers and 5 apples, but you can do so
if you have the market value
Final Goods and Services
- A final good/service is an item bought by a final user at a given time
- An intermediate good is something used in creating a final good/service
o Final goods include intermediate goods, so we avoid double
- Final goods/services are what matters for our well-being
- Only goods and services count; investments/transactions do not count
because it is simply transferring of money
- Second hand goods do not count because they were bought as final goods;
this avoids double counting
Produced Within a Country
- GDP measures production within a country
o Anything in produced in Canada counts towards Canadian GDP
In a Given Time Period
- GDP measures producing during a specific time period
o Usually yearly or quarter-annually
Measuring Canada’s GDP
- 2 approaches: the expenditure and income approach
o GDP = Expenditure = Income
Expenditure Approach
- Consumption + Gross Investment + Government Purchases + Exports
o C + G + I + X M
o All goods and services are categorized into one of these groups
- Consumption
o Household spending
Durables (cars, fridges, etc.)
Non-durables (chocolate bars, food, etc.)
Services (restaurants, etc.)
- Gross Investments
o Purchases of machinery, equipment, tools, etc.
o Construction (ALL construction)
o Changes in inventory
Firms purchase unsold final goods from themselves
o Do NOT subtract depreciation (it has no overall monetary value)
- Government Spending
o Spending on final goods and services
Military spending, Canada’s economic action plan, etc.
o NOT transfer payments
Taxes, subsidies, welfare payments, employment insurance,
o Transactions are just shuffling of money
- Exports Minus Imports
o Exports involve goods that are produced domestically and sold