Textbook Notes (369,205)
Canada (162,462)
Economics (923)
ECN 204 (282)
Chapter 7

ECN 204 Chapter 7: Week 2 - Measuring the Economy's Output

5 Pages

Course Code
ECN 204
Salewa Yinka Olawoye

This preview shows pages 1 and half of page 2. Sign up to view the full 5 pages of the document.
Chapter Seven – Measuring the Economy’s Output GDP: - National Income Accounting = measures the economy’s overall performance/how well the economy is doing with respect to policies  Allows economists/policymakers to compare levels of production at regular intervals, track the long-run course of the economy, and formulate policies that will maintain/improve the economy’s health  Ex: Statistics Canada compiles the national income accounts for the Canadian economy - GDP = the main measure of an economy’s performance through its total aggregate output  Aggregate Output = the total dollar value of all final goods/services produced within the borders of a country during a specific period of time, typically a year  Aggregate output is a monetary measure because if it were not, there would be no way to compare the relative values of the number of goods/services produced in different years  Shows how much society is willing to pay for a particular combination of goods/services during the year  This only includes final goods and ignores intermediate goods to avoid multiple counting  Intermediate Goods = products that are purchased for resale or further processing/manufacturing; include labour and capital goods  Final Goods = products that are purchased by their end users - Value Added = the market value of a firm’s output less the value of the inputs the firm bought from others  This is another way of avoiding multiple counting - GDP excludes the following nonproduction transactions:  Financial Transactions = public transfer payments (e.g. welfare, employment insurance, etc.), private transfer payments (e.g. the transfer of funds from one individual to another), stock market transactions (e.g. the buying/selling of stocks and bonds)  Second-Hand Sales = generate no current production (e.g. buying textbooks from a friend) - GDP can be calculated in two ways:  Expenditures Approach = the sum of all the money spent buying goods/services  Income Approach = the total income derived from producing final goods/services The Expenditures Approach: - GDP = C + Ig+ G + X n - Personal Consumption Expenditures (C) = all expenditures by households on goods/services; ten percent of personal consumption expenditures are on durable goods, thirty percent are on non- durable goods, and sixty percent are on services  Durable Goods = products that have expected lives of at least three years  Ex: automobiles, furniture, etc.  Nondurable Goods = products with less than three years of expected life  Ex: food, clothing, etc. - Gross Investment (I g = includes all final purchases of machinery/equipment/tools by firms, construction, changes in inventories, and intellectual property products  Does not include noninvestment transactions  Ex: the transfer of paper assets, the resale of tangible assets, etc.  Differs from net investment  Net Investment = includes only the investment of added capital  When gross investment and depreciation are equal, there is no change in the size of the capital stock  Capital Consumption Allowance = the depreciation of capital over the course of a year  Net Investment = Gross Investment – Depreciation  Construction = includes both residential construction as well as the construction of new factories/warehouses/stores  Positive and Negative Changes in Inventories = positive changes in inventory (increased production), which includes inventory that remained unsold at the end of the year, is added to GDP; negative changes in inventory (increased selling of goods), which includes the sale of inventories produced in prior years, is subtracted from GDP - Government Purchases (G) = consist of expenditures for goods and services that the government consumes in providing public services, expenditures for publicly owner capital (e.g. schools, highways, etc.), and government expenditures on R&D and other activities that increase the economies stock of know-how  Include expenditures at all levels of government on final goods, investment goods, and direct purchases of resources (including labour) - Net Exports (X n = international trade transactions  Net Exports
More Less
Unlock Document

Only pages 1 and half of page 2 are available for preview. Some parts have been intentionally blurred.

Unlock Document
You're Reading a Preview

Unlock to view full version

Unlock Document

Log In


Join OneClass

Access over 10 million pages of study
documents for 1.3 million courses.

Sign up

Join to view


By registering, I agree to the Terms and Privacy Policies
Already have an account?
Just a few more details

So we can recommend you notes for your school.

Reset Password

Please enter below the email address you registered with and we will send you a link to reset your password.

Add your courses

Get notes from the top students in your class.