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CA (170,000)
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Chapter 2

# MGEB06H3 Chapter Notes - Chapter 2: Imputed Rent, Gross National Income, Business Cycle

Department
Economics for Management Studies
Course Code
MGEB06H3
Professor
Iris Au
Chapter
2

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MGEB06 CHAPTER 2 THE DATA OF MACROECONOMICS
FOCUSING ON:
1. Gross domestic product (GDP) total national income & expenditure on the nation’s output of goods and services
2. Consumer price index (CPI) measurement of the level of prices
3. Unemployment rate informs the fraction of workers unemployed
MEASURING THE VALUE OF ECONOMIC ACTIVITY: GDP
Statistics Canada computes every 3 months from a large collection of primary data
Primary data with both administrative and statistical data
o Administrative data: byproducts of gov. functions ex.tax collection
o Statistical data: come from gov. surveys
o
Purpose of GDP: summarize all data in a single # rep. the total \$ value of econ. activity in a given time period
Measures all three of the following concepts:
o Total output of goods and services
o Total income of all individuals
o Total expenditure of all individuals
- Econ. as a whole: income = expenditure
GDP = total value of all final goods/services produced within Canada
- No Canadian worker had a job in another country
- No foreigner had a job in Canada
- All machines and factories used both here and elsewhere were owned by domestic residents
THUS: if all 3 points above are true
THEN: total value of final goods = total Canadian income
HOWEVER: since income is received from individuals owning capital equipment in other countries
THUS: GDP is not a perfect measure of Canadian income
GDP is the total income earned domestically (including the income earned domestically by foreigners)
IMPORTANT: to subtract the part of the GDP that rep. the income from on soil foreigners
locates in the Statistics Canada in the Balance of International Payments accounts
When considering 2 years with the gov. focusing on reducing the deficit and spending, the timing and size of the cyclical
swings in the resulting series without the foreign income and in the GDP itself are almost identical
Thus: for discussing business cycles and stabilization policy, nothing is lost by focusing on the overall GDP
Gov. concerted effort to eliminate its budget deficit resulted in:
- lower overall Canadian indebtedness with the rest of the world
- own a bigger fraction of the machines and factories that operate within the country
- long term wise lowering foreigner income percentage of the entire GDP
- higher income for Canadians
INCOME, EXPENDITURE, AND THE CIRCULAR FLOW
Computing GDP: (single product economy)
1. total income from the production of A
top half of the circular flow of dollars
o total income = sum of wages and profit
2. total expenditure on the purchase of product of A
bottom half of the circular flow of dollars
firms to household OR household to firms
rule of accounting: all must equal and have effects
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