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ECON 1010 Midterm notes.docx

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Administrative Studies
ADMS 1010
Sadia Mariam Malik

MacroeconomicsChapter 20 Gross Domestic Productmarket value of the final goods and services produced in a country during a given time period Total productionadd production of items included 5 apple10 strawberriesmeasured by GDPMarket ValuePrice at which items are traded in markets and we can find value production can include more than 1 item with price added together MV 10cents50apples5Final goods and servicesTo calculate GDP we find values of final goodsservices producedFinal goodserviceItem bought by final user during specified time periodIntermediate goodserviceItem produced by one firm bought by another and used as a component for final goodserviceEx Dell computer Final Pentium chip Int and if we added the prices of FI then we would be double counting because final already includes value of Int Sometimes a goodservice could be Int or F in different situations Ex Icecream bought at truck on summer day is Final but icecream bought to make sundaeF is INT Some are neither Ex Financial assetsstocksbonds or second hand goods like used cars or existing homes because they were apart of GDP in year produced but not current year Produced within a countryOnly goodsservices produced within a country count as a part of the GDP of that country Ex If Roots produces shirts in japanapart of japan GDP not oursIn a given time periodGDP measures value of production in a given time period quarter yearquarterly GDP data or a yearannual GDP dataGDP also measures total incomeexpenditure Equality between value of total productionincome shows link between productivity and living standards rises as total income increasesafford more gs which makes us have to produce more gs as wellRising income and value of production go together as two aspects in increasing productivity GDP and Circular flow of expenditure and incomeeconomy consists of households firms governments and everyone else who trade in factor and goodservice markets Households and FirmsHouseholds sell and firms buy factors of production landcapitallabour and firms pay income to households wages for labour services rent for land use and interest for capital while entrepreneurship gets profit1A firms retained earnings are profits not distributed to households but are considered apart of household sector income often thought of as income that households save and lend to firmsFirms sell and households buy consumer goods and services haircutfood in the goods marketTotal payment for these goods is called consumption expenditure Firms buy and sell new capital equipment computer systemstrucks and some of what firms produce is not sold but added to inventory unsoldbuying from self These additions to inventory along with purchases of a new plant equipment buildings are called investmentsGovernmentsBuy goodsservices from firms and expenditure on them is called govt expenditure Finance expenditure with taxes not a part of circular flow of expincGovt mark financial transfers to households benefits and pay subsidies to firmsalso not a part of circular flow of expincRest of the WorldFirms in Canada sell goodsservices to the rest of the world exports and also buy importsValue of exportsimportsnet exportsIf NEs are positive then the net flow of gs is from Canadian firms to world and opposite if negative GDP Equals Expenditure Equal IncomeGDP can be measured by total expenditure on gs or total income earned producing gsAggregate expenditureconsumption expenditureinvestmentgovt expenditurenet exportsAggregate incometotal paid for services of factors of production used to produce final gs wagesIabourrentprofitSince firms pay out as incomes everything they receive from sale of outcome aggregate incomeaggregate expenditure YGDPCconsumption expenditureIinvestmentGgovt expenditureX Mnet exports of gsWhy is Domestic Product GrossOpposite of gross is netGross is before subtracting capital depreciation and net is afterDepreciation is decrease in value of firms capital Total amount spent buying new capital and replacing depreciated is called gross investmentAmount by which capital increases is called net investment NIGIDep2
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