ECN 204 Lecture Notes - Gdp Deflator, Canada Pension Plan, Unemployment Benefits
1 May 2012
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Document Summary
Equality of income and expenditure is with the circular-flow diagram. Households buy goods and services from firms; these expenditures flow through the markets for goods and services. The firms in turn use the money they receive from sales to pay workers" wages, landowners" rent, and firm owners" profit; this income flows through the markets for the factors of production. Money flows from households to firms and then back to households. We can compute gdp for this economy in one of two ways: by adding up the total expenditure by households or by adding up the total income (wages, rent, and profit) paid by firms. Because all expenditure in the economy ends up as someone"s income, gdp is the same regardless of how we compute it. Gross national product (gnp) - is the total income earned by a nation"s permanent residents (called nationals) regardless of where they were located when the income was earned.
