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Midterm

Macro 1st Midterm...Chapters 20-23

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Department
Economics
Course
Economics 1022A/B
Professor
Lanfeng Yu
Semester
Winter

Description
Macroeconomics Chapters 2023Chapter 20Measuring GDP and Economic GrowthGross Domestic ProductThe market value of the final goods and services produced within a country in a given time periodMarket Value The prices at which products are traded in markets o Eg If the price of an apple Is 10 cents then the market value of 50 apples is 5Final Goods and Services A final good is an item that is bought by its final user during a specified time period o Contradicts with an intermediate good which is an item produced by one firm and sold by anotherProduced within a country Only goods produced within a country are counted in the GDP o Ex If a Canadian company produces products in China that does not countIn a given time period Usually a year GDP and the Circular Flow of Expenditure and IncomeThe economy consists of households firms governments and the rest of the world which trade in factor markets and good marketsHouseholds and FirmsHouseholds Sell services of labour capital and land in factor marketsFirms Buy services of labour capital and land in factor markets o Pay income to households Wages for labour interest for use of capital and rent for land Entrepreneurship earns profit for firmso Firms retained earnings are part of the household sectors incomeFirms Sell consumer goods and services Buy and sell capital equipment The purchase of new plant equipment and buildings are investment Households Buy consumer goods and servicesConsumption Expenditure The total payment for all goods and services GovernmentsThe expenditure on goods and services from buying goods and services from firmsTaxes are not part of the circular flow of incomeGDPExpendituresIncomeGDP can be measured in 2 ways o By the total expenditure on goods and services o By the total income earned from producing goods and services o Aggregate expenditureCGIXM o Aggregate IncomeAggregate ExpenditureWhy is Domestic Product GrossGross means before subtracting the depreciation of capital Depreciation The decrease in the value of a firms capital that results from wear and tear and obsolescence Gross Investment The total amount spent both buying new capital and replacing depreciated capitalNet Investment The amount by which the value of capital increasesNet InvestmentGross InvestmentDepreciationMeasuring Canadas GDPStatistics Canada uses the concepts in the circular flow model to measure GDP and its components in the National Income and Expenditure AccountsThere are two approaches to measuring GDP o The Expenditure Approach o The Income ApproachThe Expenditure ApproachMeasures GDP as the sum of consumption C investment I government expenditure on goods and services G and net exports of goods and services XMPersonal expenditures on consumer goods and services are the expenditures by Canadian households on goods and services produced in CanadaBusiness Investment is the expenditure on capital equipment and building by firms and the additions to business inventoriesGovernment Expenditures on goods and services is the expenditure by all levels of government on goods and services Net Exports of goods and services are the value of exports minus the value of importsThe Income ApproachMeasures GDP by summing the incomes that firms pay households for the factors of production they hirewages for labour interest for capitral rent for land and profit for entrepreneurship The National Income and Expenditure Accounts divides income into 5 categories o Wages salaries and supplementary labour The payment for labour servicestakehome pay o Corporate profitsThe profits of corporations some of which are paid as dividends and some of which are retained as corporations o Interest and miscellaneous investment income o Farmers Incomeo Income from nonfarm unincorporated businesses Mixtures of the previous 3 items Include compensation for the owners labour payment for the use of the owners capital and profit lumped together in these two catchall phrases Indirect Tax A tax paid by consumers when they buy goods and servicesSubsidy A payment by the government to a producer Statistical Discrepancy The gap between the expenditure approach and the income approachthe GDP expenditure totalthe GDP income total
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