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Chapter 5

Chapter 5 Study Notes / Summary These are notes made based on the chapter in the book that the course uses - very helpful, covers every little section of chapter and holds important points.

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ECON 102
Jing Ye Shi

Chapter 5 – Measuring a Nation’s Income Introduction  statistics that are seen in media and are macroeconomics: total income of nation (GDP), rate at which prices are rising (inflation) and percentage of labour force out of work (unemployment), total spending at stores (retail sales), and the imbalance of trade between Canada and the rest of the world (trade deficit)  these stats tell us about the entire economy – macroeconomics  microeconomics – how individual households and firms interact in the market  macroeconomics – the study of the economy as a whole  goal of macroeconomists is to explain the economic changes that affect many households, firms and markets simultaneously  economists and policymakers use data to monitor performance of the overall economy, one of which is GDP  GDP – gross domestic product – most closely watched economic statistic because it’s thought to be best single measure of a society’s economic well-being Economy’s Income and Expenditure  if to judge a person’s economic wellbeing, you would look at their income, high income means afford life’s necessities and luxuries  similar logic applies to the economy as a whole, to judge if the economy is doing well, look at the total income that everyone is earning – the task of GDP  GDP measures two things: total income and total expenditure on goods and services  GDP can measure both because both are the same, for an economy as a whole, income equals expenditure  every dollar of spending by some buyer is a dollar of income for some seller o ex: page 98:4 o ex: circular flow diagram Measurement of Gross Domestic Product  GDP: is the market value of all final goods and services produced within a country in a given period of time  “GDP is the market value...” o GDP adds together many different kinds of products into a single measure o uses market prices, market prices measure the amount people are willing to pay for different goods o GDP measures all goods and services using the same units (ex. CAD $) o things that don’t have market value are excluded (homework/housework done)  “... of all ...” o tries to be comprehensive, includes all items produced in economy and sold legally in markets o includes market value of housing services  ex: page 100:2 (estimates rental value of a owned home, otherwise includes rent that is paid) o excludes drugs, excludes things produces and consumed at home (vegetables)  “... final ...” o GDP only includes the value of the final good o value of intermediate goods are already included in the prices of final goods o intermediate goods and services are used as ingredients of components in production of other goods  “... goods and services ...” o GDP includes both tangible goods (food, clothing, cars) and intangible services (dry cleaning, concerts, dentist visits, etc.)  “... produced...” o GDP includes goods and services currently produced, does not include transactions of the past  ex: new car by GMC, value included in GDP, when one person sells used, not included  “...within a country...” o GDP measures the value of production within physical/geographical border of a country o items included in a nation’s GDP if produced domestically, no matter the nationality  “...in a given period of time.” o GDP measures value of production that takes place within a certain interval, usually a year or a quarter (3 months) o when reported quarterly, presents after being modified with a stat. procedure called seasonal adjustment  economy might produce more of certain goods during some time of year than others Other Measures of Income GNP  GNP (gross national product) is the total income earned by nations permanent residents (nationals) regardless of where they were
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