Week 2 chapter notes

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University of Toronto Scarborough
Economics for Management Studies
Iris Au

Chapter 20 The Measurement of National Income Notes 20.1 National Output and Value Added N production occurs in stages: some firms produce outputs that are used as inputs by other firms, and these other firms, in turn, produce outputs that are used as inputs by yet other firms N intermediate goodsall outputs that are used as inputs by other producers in a further stage of production N final goodsgoods that are not used as inputs by other firms but are produced to be sold for consumption, investment, government, or exports during the period under consideration N value addedthe value of a firms output minus the value of the inputs that it purchases from other firms N value added = revenue cost of intermediate goods = income to factors of production N value added is correct measure of each firms contribution to total outputamount of market value that is produced by that firm N the sum of all values added in an economy is a measure of the economys total output 20.2 National Income Accounting: The Basics N the value of domestic output is equal to the value of the expenditure on that output, and is also equal to the total income claims generated by producing that output N gross domestic product (GDP)the total value of goods and services produced in the economy during a given period GDP from the Expenditure Side N total expenditure on final output is the sum of four broad categories of expenditure: consumption, investment, government purchases, and net exports 1) consumption expenditurehousehold expenditure on all goods and services; represented by the symbol C as one of the four components of aggregate expenditure; includes: services, such as haircuts, dental care, and legal advice; non-durable goods, such as fresh vegetables, clothing, cut flowers, and fresh meat; and durable goods, such as cars, TVs, and air conditioners; actual measured consumption expenditure is denoted by the symbol C a 2) investment expenditureexpenditure on the production of goods not for present consumption; represented by the symbol I; includes inventories, capital goods such as factories, machines and warehouses, and residential housing; such goods are called investment goods; actual total investment expenditure is denoted by the symbolaI 3) government purchasesall government expenditure on currently produced goods and services, exclusive of government transfer payments; represented by the symbol G; actual government purchases of goods and services are denoted G a 4) net exportsvalue of total exports minus value of total imports; re
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