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[ECO100Y1] - Midterm Exam Guide - Everything you need to know! (11 pages long)Premium

11 pages144 viewsWinter 2017

Department
Economics
Course Code
ECO100Y1
Professor
Avi Cohen
Study Guide
Midterm

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UTSG
ECO100Y1
MIDTERM EXAM
STUDY GUIDE
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Lecture 13
GDP concepts measure the value of al final products and services produced annually in a
country
Nominal GDP combines charges in prices and quantities
Real GDP measure only changes in quantities
Real GDP per person is the best measure of material standard of living
Correlated with living standards
Nominal GDP
o Value at current prices of all final products and services produced annually in a
country
o Calculated by multiplying average price of a good and average quantity of the
produced good, and then added altogether
o Differences in nominal GDP between years due to price changes or quantity
changes
o GDP iludes podut ad seies podued ithi a out’s odes, o
matter what the nationality of the business doing the producing
o GDP is a flow amount per unit of time measured annually, quarterly etc.
o Stock is a fixed amount at a moment in time
Real GDP
o Value at constant prices of all final products and services produced annually in a
country
o Difference in real GDP between years show only changes in quantities
o Allows us to separate role of price and quantities
Real GDP per person
o Real GDP divided by population
o The best measure of material standard of living
o Standard of living refers to how much one person has to use, and if one country
has half the population of another country, people will get the twice the amount
of things as the people in the other country
Value added and the Enlarged Circular Flow
o Value added solves the problems of doable counting and distinguishing final and
intermediate products and services, and shows how aggregate spending equals
aggregate income in circular flow diagrams
o Final product or service consumed directly by consumers e.g. you bought a
plane ticket
o Intermediate product or service input bought from other business e.g. you
bought a ticket to run a sales call
o Value added value of output minus the value of intermediate products and
services bought from other business
o Value added solves the problem of double counting and of distinguishing
between final and intermediate products and services
Value of final products and services = value added
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Value of fial poduts ad seies = iput’s ioe
Above is an economy consisting of a farmer, miller, and baker. Assume that the farmer does not
borrow/buy inputs from anyone. She has her own supplies, and the product produced is the
wheat produced and sold for $3. His valye added is equal to the value of final products.
Farmer then sells to the miller so there is borrowing. His value added is $5 because you
subtracted his cost of inputs from his sale price.
Baker buys from miller, so his purchased inputs cost $8. Minus that from the retail price and
your value added is $4
GDP can be calculated using either half of the circular flow
o Aggregate spending (GDP) = aggregate income
o Spending on final products and services = payments to input owners
o Businesses provide income to consumers who then partake in consumption
using that money
Flows of spending on the enlarged circular flow
o C consumption spending by consumers
o I business investment spending on factories and machines made by business
o G government spending on products and services
o X spending by the rest of the world on Canadian exports of products and
services
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