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.
1) Consumption Expendentures (C)- Personal Expenditures on consumer goods and services
The purchase of a new car by a cadian household.
Consumption expenditures do not include the purchase of new homes, new homes are counted
2) Business Investment (I) - Firms make investment expendentures on new plant, equipment,
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
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
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 (