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ECON 1010
John Paschakis

Chapter 20  Measuring GDP and Economic Growth  Macroeconomics: The study of the national economy and the global economy.  Macroecon issues: 1) unemployment 2)recessions 3) budget deficiet 4) Inflation  GDP (Gross Domestic Product)  The total market value of all the final goods and services produced within a country in a given time period.  Final goods and services produced in Canada by foreigners are part of Canadas GDP.  In measuring GDP, economisits: 1) use final goods and services only. This avoids double counting. 2) Use market prices to value production.  The value of intermediate goods is not counted in GDP.- intermediate goods are produced by one firm, bought by another firm, and used as a component of a final good or service.  An alternate concept in measuring a nations output is GNP (Gross National Product).  GNP is the total value of all final goods and services produced by labour, capital, and other resources of a country, regardless of where production occurred.  The circular flow model: It illustrates the flow of expendenture and income b/w diff sectors of the economy. - the economy consist of : households, firms, gov’t. the rest of the world.  Business firms sell goods and services  Households sell resources (labour) to business firms.  The purchasers of goods and services are householls, firms, govt nd rest of the world.  Aggregrate Expenditures:  1) Consumption Expendentures (C)- Personal Expenditures on consumer goods and services by households.  The purchase of a new car by a cadian household.  Haircurts  Consumption expenditures do not include the purchase of new homes, new homes are counted as investment.  2) Business Investment (I) - Firms make investment expendentures on new plant, equipment, and buildings.  This is the purchase of new caital by firms.  It includes expendentures on new homes by households.  The purchase of a new car by a company is considered a business investment.  It also includes aditttions to business inventories ( the change in business inventories.)  3) Govt Expenditures ( G )  Gov’t ( provincial, federal and local), spending on goods and services.  Expenditures on national defence and garbage collection.  They don’t include transfer payments b/c they arnt purchases of goods and services.  Gov’t uses taxes to pay for their purchases.  Net Taxes (NT)= (Taxes paid to govt) – ( transfer payments received from govts)  Transfer payments, cash transfers from govts to housholds and firms.  Social security benefits, unemployment benefits, subsidies to firms.  4) NET EXPORTS OF GOODS AND SERVICES ( X – M)  The value of exports (X) , minus the value of imports (M)  AGGREGATIVE EXPENDENTURE OR TOTAL EXPENDENTURES= [ C + I + G+ ( x-m) ]  AGGREGATIVE INCOMES (Y) income earned producing goods and services wages for labour intrest for capital  rent for land proft for enterperunship  Firms pay out as incomes everything they reveive from the sale of their output. Therefore, aggregraative expendentures equals aggregative income (y) and equals GDP.  GDP= Y = C + I + G (x-m)  Capital: The plant, equipment, buildings, inventories of raw materials and semifinsihed goods. It is used to produce other goods and services.  Gross Investment the total amount spent both buying new capitaland replacing depreciated capital.  Depreciation(Or capital consumption)  The decrease in the stock of capital that results from wear and tear and absolence.  Net investment equals gross investments minus depreciation.  The stock of capital increases by the amount of net investment from one year to the next.  GDP grows b/c capital stock grows  Investment adds to capital, so GDP grows b/c of investment.  MEASURING CANADAS GDP To measure GDP, statistics Canada uses 2 approaches:  1 )The expenditure approach  2) The income approach  1) THE EXPENDTURE APPROACH:  GDP = Y = C + I + G (
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