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Lecture 7

Lecture 7: Economic Measurement 2-- National Accounts Measure and GDP

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University of Canterbury
Stephen Hickson

ECON105 Lecture 7: Economic Measurement 2-- National Accounts Measure and GDP The accounts of the nation attempts to measure the value of all economic activities in a coherent (structured, logically) and articulated (connected) system. For purposes of measurement, an economic activity is one which can be measured in monetary terms. 3 Key Accounts 1. GDP and Expenditure Account [See definitions in the diagram] Income method Expenditure Method 2. National Income and Outlay Account 3. Capital Finance Account Deficit shows that NZ has been a country of borrowers What GDP is and is not GDP is only a measure of the production of final goods and services. 1. It does not measure “well-being” in a broader sense but is correlated with many things we care about. UN living standards report ranks countries according to their standards of health, education and income. NZ ranks fifth in the UN report, which is higher than the NZ’s GDP per capita value. This suggests that NZ may be less wealthy than some countries but people are happier to live in NZ compared to other countries. GDP is not a perfect measure of well-being. Eg: GDP excludes the value of leisure and the value of a clean environment. However, there is some correlation. Eg: GDP does not measure life expectancy, but they are correlated. Countries with higher GDP tend to have higher life expectancy. Wealthy countries tend to have high life index. 2. The hidden economy is not included but such transactions do contribute to living standards. Types of hidden economy Legal but unreported: Many transactions are unreported to avoid paying tax. Eg: hire someone to paint the house without reporting Illegal activities: illegal market Unpaid work: Volunteer, charity works 3. Beware the broken window fa
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