ECN 204 Chapter Notes - Chapter 5: Unemployment Benefits, Canada Pension Plan, Gdp Deflator

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Published on 26 Apr 2012
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Wednesday January 18th, 2012
Chapter 5
Measuring a Nation’s Income
Micro vs. Macro:
-Microeconomics:
The study of how individual households and firms make decisions, interact with one another in
markets
-Macroeconomics:
The study of the economy as a whole
We begin our study of macroeconomics with the country’s total income and expenditure
Income and Expenditure:
-Gross Domestic Product (GDP) measures total income of everyone in the economy
-GDP also measures total expenditure on the economy’s output of goods and services (g&s)
-For the economy as a whole, income equals expenditure because every dollar a buyer spends is a dollar
of income for the seller
A dollar spent is a dollar earned
-A good way to judge how well someone is doing economically is to look at his or her income; we can
judge how well a country is doing economically by looking at the total income that everyone in the
economy is earning
-GDP is our measure of the economy’s total income, often called “national income”
-GDP also measures total expenditure on the goods and services produced in the economy, and the
value of the economy’s output (production) of goods and services, GDP is also referred to as “output”
-The equality of income and expenditure is an accounting identity (not, for example, an equilibrium
condition): it must be true that income equals expenditure
The Circular-Flow Diagram:
-a simple depiction of the macro-economy
-illustrates GDP as spending, revenue, factor payments, and income
-Preliminaries:
Factors of production are inputs like labour, land, capital, and natural resources
Factor payments are payments to the factors of production
Example: wages, rent
-land earns rent
-labour earns wages
-capital earns interests
-Households:
Is land, labour, capital
own the factors of production, sell/rent them to firms for income
buy and consume, good and services
-Firms:
buy/hire factors of production, use them to produce goods and services
sell goods & services
firms have goods and services which they want to sell, which are bought buy households
-both actors (households and firms) are both buyers and sellers:
you sell yourself as a factor of production (you sell your labour)
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Document Summary

The study of how individual households and firms make decisions, interact with one another in markets. The study of the economy as a whole. We begin our study of macroeconomics with the country"s total income and expenditure. Gross domestic product (gdp) measures total income of everyone in the economy. Gdp also measures total expenditure on the economy"s output of goods and services (g&s) For the economy as a whole, income equals expenditure because every dollar a buyer spends is a dollar of income for the seller. A dollar spent is a dollar earned. Gdp is our measure of the economy"s total income, often called national income . Gdp also measures total expenditure on the goods and services produced in the economy, and the value of the economy"s output (production) of goods and services, gdp is also referred to as output .

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