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ECO100Y1c.doc Lecture #16 Monday, February 2, 2004 M ACROECONOMICS Output : GDP. Households Employment: Total income Total employmentunemployment. earned expenditureproduction Prices: inflation. Input Output Markets Markets Firms N ATURAL INCOME A CCOUNTING Profits = Total Sales Revenue Cost of Goods Sold. Cost of Goods Sold: wagessalaries, rent, indirect taxes, purchases from other firms, interest, depreciation. Profits + Cost of Goods Sold = Total Sales Revenue (Income Earned = Expenditure). Cost of Good Sold + Profits Total Sales Revenue Purchase of goods and services * 100 To households 500 Wages, salaries, benefits 600 To businesses: capital 200 Rents 100 To businesses: non-capital * 100 Interest paid 100 To government 300 Indirect Taxes - Subsidies 50 Depreciation 50 Profits Corporate profits: retained Corporate profits: dividends Corporate profits: taxes Total 1100 Total 1100 Purchase of goods and services and Capital sales to businesses must be netted out. Cost of Good Sold + Profits Total Sales Revenue Wages, salaries, benefits 600 Personal Consumption Expenditure (C) 500 Rents 100 Government spending on goods and services 300 Interest 100 Gross Business Investment 200 Corporate profits 100 Domestic Income (at 900 Export - Imports (X - M) factor cost) Indirect Taxes - 50 Subsidies Net Domestic Product 950 (NDP) Depreciation 50 Page 1 of 12 ECO100Y1c.doc Gross Domestic 1000 Gross Domestic Expenditure (GDE) (at 1000 Product (GDP) market prices) Lecture #17 Monday, February 9, 2004 INTERMEDIATE S ALES AND VALUED ADDED Example Sales Purchase From Other Firms Value Added Wheat 10 10 Flour 25 10 15 Bread 50 25 25 85 35 50 Proper contribution = 50. Bread is the final product (brought by consumers). R EAL VS . NOMINAL Real: Figures adjusted for average price increases and inflation. Nominal: Figures not adjusted for average price increases and inflation. P RICE NDEX Helps determine whether increases in GDP is prices or production. Examples GDP deflator, CPI (consumer price index). Challenges Changing prices. Weighting what is more important? What is included? What is not included? Newchanging products. GDP VS. GNP Gross Domestic Product Measures economic activities. Ignores who owns the factors of production. Gross National Product Concentrates on who owns the assets tracing where profits goes. Page 2 of 12
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