Study Guides (238,069)
Canada (114,906)
Economics (379)
EC140 (65)


8 Pages
Unlock Document

Wilfrid Laurier University
Matthew Smith

EC140 Chapter 20-Measuring GDP and Economic Growth Week 2 Gross Domestic Product -The market value of the final goods and services produced within a country in a given time period -Has 4 parts: -Market value -Final goods and services -Produced within a country -In a given time period Market Value -The price at which items are traded in markets -By using market prices to value production, we can add apples and oranges together – two items that are not similar Final Goods and Services -A final good is an item that is bought by its final user during a specified time period -It contrasts 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 -Ex. a Ford truck is a final good, but a Good wrench tire on it is an intermediate good -The value of the truck already included the value of the tires -Some items people buy are neither final goods nor intermediate goods and they are not part of GSP -Examples of such items include financial assets - stocks and bonds, and second-hand goods Produced Within a Country -Only  goods  that  are  produced  within  a  country  count  as  part  of  that  country’s  GDP In a Given Time Period -Normally measured in either a quarter or a year – quarterly GDP data – or a year – called the annual GDP data GDP and the Circular Flow of Expenditure and Income EC140 Chapter 20-Measuring GDP and Economic Growth Week 2 Households and Firms -Households sell and firms buy the services of labour, capital, and land in factor markets -Firm’s  retained  earnings  – profits that are not distributed to households – are part of the  household  sector’s   income -Firms sell and households buy consumer goods and services – such as inline skates and haircuts - in the goods market -The total payment for these goods and services is consumption expenditure -The  purchase  of  firm’s  new  plant, equipment, and buildings are investments Governments -Governments buy goods and services and their expenditure on goods and services is called government expenditure -Governments finance their expenditures with taxes Rest of the World -Firms in Canada sell goods and services to the rest of the world – exports – and buy goods and services from the rest of the world – imports -The value of the exports minus the imports is called net exports GDP Equals Expenditure Equals Income -Aggregate income is equal to the total amount paid for the services of the factors of production used to produce final goods and services – wages, interest, rent and profit Why  is  Domestic  Product  “Gross”? -Depreciation is  the  decrease  in  the  value  of  a  firm’s  capital  that  results from wear and tear and obsolescence. -The total amount spend both buying new capital and replacing depreciated capital is called gross investment -The amount by which the value of capital increase is called net investment -Net investment equals gross investment minus depreciation. Measuring  Canada’s  GDP -There are two approaches available for measuring GDP, and both are used. They are: -The expenditure approach -The income approach The Expenditure Approach -Measures GDP as the sum of consumption expenditure (C), investment (I), government expenditure on goods and services (G), and net exports of goods and services (X-M). EC140 Chapter 20-Measuring GDP and Economic Growth Week 2 The Income Approach -Measures GDP by summing the incomes that firms pay households for the factors of production they hire – wages for labour, interest for capital, rent for land, and profit for entrepreneurship -Divides income into 5 categories: 1. Wages, salaries, and supplementary labour income 2. Corporate profits 3. Interest and miscellaneous investment income 4. Farmer’s  income 5. Income from non-farm incorporated businesses -Wages, salaries and supplementary labour income is the payment for labour services. -Corporate profits are the profits of corporations -Interest and miscellaneous investment income is the interest households receive on loans they make minus the interest households pay on their own borrowing -Farmer income and income from non-farm unincorporated businesses are mixtures of the previous three items -A subsidy is a payment by the government to a producer -Total expenditure is a gross number because it includes gross investment -To get from net income to gross income, we must add depreciation -The gap between the expenditure approach and the income approach is called the statistical discrepancy EC140 Chapter 20-Measuring GDP and Economic Growth Week 2 Nominal GDP and Real GDP -Real GDP is the value of final goods and services produced in a given year when valued at the prices of a reference base year. By comparing the value of production in the two years at the same prices, we reveal the change in production -Currently, the reference base year is 2002, and we describe GDP in 2002 dollars -Nominal GDP is the value of final goods and services produced in a given year values at the prices of that year. It is a more precise name for GDP Calculating Real GDP -We’ll calculate real GDP for an economy that produces one consumption good, one capital good, and one government service. Net exports are 0. EC140 Chapter 20-Measuring GDP and Economic Growth Week 2 The Uses and Limitations of Real GDP -Economists use estimates o
More Less

Related notes for EC140

Log In


Don't have an account?

Join OneClass

Access over 10 million pages of study
documents for 1.3 million courses.

Sign up

Join to view


By registering, I agree to the Terms and Privacy Policies
Already have an account?
Just a few more details

So we can recommend you notes for your school.

Reset Password

Please enter below the email address you registered with and we will send you a link to reset your password.

Add your courses

Get notes from the top students in your class.