ECN 204 Chapter Notes - Chapter 5: Gross Domestic Product, Dry Cleaning, Unemployment Benefits
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CHAPTER 5 MEASURING A NATION’S INCOME
The Measurement of Gross Domestic Product
•GDP: the market value of all final goods and services produced within a country in
a given period of time
•Sum of all incomes OR expenditures (same look at pg 98)
Goods are valued at their market prices, so:
•All goods measured in the same units (e.g., dollars in Canada)
•Things that don’t have a market value are excluded, e.g., housework you do for
•Final goods: intended for the end user
GDP only includes final goods – they already embody the value of the
intermediate goods used in their production.
•GDP includes tangible goods (like DVDs, mountain bikes, beer)& intangible
services (dry cleaning, concerts, cell phone service).
•GDP includes currently produced goods, not goods produced in the past.
•Usually a year or a quarter (3 months)
THE COMPONENETS OF GDP
•To understand how the economy is using its scarce resources study the
composition of GDP amongst various forms of spending
Government Purchases (G)
Net Exports (NX)
These components add up to GDP (denoted Y):
•Y = C + I + G + NX
•Total spending by households on goods and services (ie. Clothes, haircuts, food)
•FOR RENTERS : includes rent payments
•FOR HOME OWNERS: imputed rental value of house not purchase price or
•Total spending on goods that will be used in the future to produce more goods
•Ie. Capital equipment (machines, tools)
•Structures (factories, office buildings, houses)
•Inventories (goods produced but not yet sold)
•Include spending on goods and services by local, territorial, provincial, and federal
•It includes the salaries of government workers and spending on public works.