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Chapter 5

Chapter 5 - Measuring the economy's output

3 Pages
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Department
Economics
Course Code
ECN 204
Professor
Thomas Barbiero

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Chapter 5 Measuring the Economys Output
5.1 Measuring the Economys Performance: GDP
Gross Domestic Product:
The main measure of the economys performance
The total market value of all final goods and services produced annually within the
boundaries of Canada
A monetary measure
National income accounting
Assess the health of the economy by comparing levels of productions at regular
intervals
Track the long-run course of the economy to see whether it has grown, been
constant, or declined
Formulate policies that will maintain and improve the economy’s health
Avoid multiple counting
To avoid multiple counting, only final goods and services are counted
Final goods: goods and services purchased for final use and not for resale or further
processing or manufacturing
Intermediate goods arent counted
Intermediate goods: products purchased for resale or further processing or
manufacturing
The value of final goods includes the value of all intermediate goods used in
producing them
GDP excludes non-production transactions
Two types of non-production transactions:
oFinancial transactions
Public transfer payments ex: welfare, employment insurance
Private transfer payments ex: birthday
Stock market transactions ex: swapping bits of paper on the stock
market
oSecond-hand sales
Two ways of calculating GDP: Expenditure and Income Approach:
The expenditure approach:
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Description
Chapter 5 – Measuring the Economy’s Output 5.1 Measuring the Economy’s Performance: GDP Gross Domestic Product: The main measure of the economy’s performance The total market value of all final goods and services produced annually within the boundaries of Canada A monetary measure National income accounting Assess the health of the economy by comparing levels of productions at regular intervals Track the long-run course of the economy to see whether it has grown, been constant, or declined Formulate policies that will maintain and improve the economy’s health Avoid multiple counting To avoid multiple counting, only final goods and services are counted Final goods: goods and services purchased for final use and not for resale or further processing or manufacturing Intermediate goods aren’t counted Intermediate goods: products purchased for resale or further processing or manufacturing The value of final goods includes the value of all intermediate goods used in producing them GDP excludes non-production transactions Two types of non-production transactions: o Financial transactions Public transfer payments – ex: welfare, employment insurance Private transfer payments – ex: birthday Stock – market transactions – ex: swapping bits of paper on the stock market o Second-hand sales Two ways of calculating GDP: Expenditure and Income Approach: The expenditure approach: www.notesolution.com Adds up all the expenditures made for final goods and services Adds up: o Personal consumption expenditures (C) o Gross investment (I g o Government purchases (G) o Net exports (X n)= exports (X) – imports (M) The income approach: Ignore the income approach 5.2 Other National Accounts Gross National Product (GNP) o The total income that residents of a country earn within the year Net Domestic Product (NDP) o Measures the total annual output that the entire economy can consume without impairing its capacity to produce in ensuing years Net National Income at Basic Prices (NNI) o In
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