Textbook Notes (358,956)
Canada (155,965)
Economics (911)
ECN 204 (278)
Chapter 5

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Ryerson University
ECN 204
Christos Shiamptanis

Chapter 5 Measuring a Nations IncomeMicroeconomics study of how households and firms make decisions and how they interact in marketsMacroeconomics study of the economy as a whole including inflation unemployment and economic growth o Explain economic changes that affect many households firms and markets simultaneouslyGross domestic product GDP measures the total income of a nation o Single measure of a societys economic wellbeing The Economys Income and ExpenditurePeople with higher income higher standards of livingGDP measures two things o Total income of everyone in the economy o Total expenditure on the economys output of goods and servicesFor an economy as a whole income must equal expenditure o Every transaction has two parties a buyer and a seller o Transaction contributes equally to the economys income and to its expenditureCircular flow diagram describes all the transactions between household and firms in a simple economy o Households buy goods and services from firms o Expenditures flow through the markets for goods and services o Firms use money they receive to pay workers wages o Income flows through the markets for the factors of productionTo compute GDP add up all expenditures or add up all the incomeHarder with real economy lots of different things that wouldnt make this work o Eg Most people dont spend all their income they save it or pay taxes The Measure of Gross Domestic ProductGross domestic product GDP market value of all final goods and services produced within a country in a given period of time GDP is the Market ValueMarket prices measure the amount people are willing to pay for different goods they reflect the value of those goodsEg If the price of an apple is twice as much as an orange then an apple contributes twice as much GDP as does an orange
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