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
yourself.
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
Four components:
Consumption (C)
Investment (I)
Government Purchases (G)
Net Exports (NX)
These components add up to GDP (denoted Y):
Y = C + I + G + NX
Consumption
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
mortgage payments
Investment
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)
Government Purchases
Include spending on goods and services by local, territorial, provincial, and federal
governments.
It includes the salaries of government workers and spending on public works.
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