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Study Guide

[ECN 204] - Midterm Exam Guide - Comprehensive Notes for the exam (14 pages long!)


Department
Economics
Course Code
ECN 204
Professor
Eric Kam
Study Guide
Midterm

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Ryerson
ECN 204
MIDTERM EXAM
STUDY GUIDE

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Gowtham Kirupakaran
January 25th, 2017
ECN204
Week 2 Lecture Chapter 20
Gross Domestic Product
GDP Defined Is the market value of all final G/S produced in a country in a given time period
This definition has four parts (important);
Market Value today’s dollar, Final Goods and Services (things that are sold), Produced
within a Country, and In a given time period (Usually a Year)
Market Value
GDP is a market value G/S are valued at their market prices
- To add apples and oranges, computer and popcorn, we add the market values so we
have a total value of output in dollar
Final Goods and Services
GDP is the value of the final G/S produced
A final good (or service) is an item bought by its final user during a specified time period
A final good contrast with an intermediate good, which is an item that is produced by
one firm, bought by another firm and used as a component of a final good or service
Intermediate Good all the things required to make the final good
Excluding the value of intermediate G/S avoids counting the same value more than once
which is also known as Double Counting
Produced Within a Country
GDP measures production within a country domestic production (within boarders)
In a Given Time Period
GDP measures production during a specific time period, normally a year/quarter of a
year
GDP and The Circular Flow of Expenditure and Income
GDP measures the value of production, which also equals total expenditure on final
goods and total income
The equality of income and value of production shows the link between productivity and
living standards
Income = Expenditure
The value of everything you spend will equal to everything you earned
The circular flow diagram shows the transaction among;
- Households, Firms, Governments, and The Rest of the World All Spend and Earn
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Gowtham Kirupakaran
January 25th, 2017
ECN204
Factors of Production Land earns rent, Labour earns wages and Capital earns interests
Households and Firms
Households sell and firms buy the services of labour, capital, and land in factor markets
For these factor services, firms pay income to households: wages for labour services,
interest for the use of capital, and rent for the use of land.
4th FOP is entrepreneurship receives profit
Firms sell and households buy consumer G/S in the good market
Consumption Expenditure is the total payment for consumer G/S, shown by the red
flow
Households consume and firms invest
Firms buy and sell new capital equipment in the goods market and put unsold output
into the inventory
The purchase of new plant, equipment, and building and the addition to inventories are
investment, shown by the red flow labelled I
Governments
Buy G/S from firms and their expenditure on G/S is called Government Expenditure
Government expenditure is shown as the red flow G
Governments finance their expenditure with taxes and pay financial transfers to
households, such as unemployment benefits, and pay subsidies to firms
These financial transfer are not part of the circular flow of expenditure income
Rest of the World
Exports firms in Canada sell G/S to the rest of the world
Imports buy G/S from the rest of the world
The value of exports (X) minus the value of imports (M) is called net exports, the red
flow
If net exports are positive, the net flow of G/S is from Canadian firms to the rest of the
world Exports > Imports
If net exports are negative, the net flow of G/S is from the rest of the world to Canadian
firms Imports > Exports
Y = C + I + G + (X M)
The circular flow shows two ways of measuring GDP
GDP Equals Expenditure Equals Income
Total expenditure on final G/S = GDP
GDP = C +I + C + X M
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