Measuring GDP and Economic Growth
Gross Domestic Product
• GDP or Gross domestic product is the market value of all the final goods and services
produced within a country in a given time period.
• A Final good (or service) is an item that is bought by its final user during a specified time
Example: Big Mac
• An Intermediate Good (or service) is an item that is produced by one firm, bought by
another firm, and used as a component of a final good or service.
Example: Raw Steel before its made into a car
• Study Figure 20.1 on p. 469 of your textbook. This figure shows the circular flow of
expenditure and income and gives the following information:
• The economy consists of:
Rest of the world
• Aggregate economic markets are:
Goods markets (goods and services)
Factor markets (productive resources)
• Define the following:
Y = Income
C = Consumption expenditure
I = Investment
G = Government expenditure
X = Exports, M = Imports
NX = Net exports = X – M
• Let’s summarize what the circular flow diagram tells us.
Sell factor services to firms and receive incomes = Y
Spend C (consumption expenditure) on goods and services
Spend G (Government expenditure) on goods and services
• The Rest of the World:
Spend NX on goods and services
Buy the services of factors of production from households and pay incomes Y Produce goods and services, which they sell to households, C, governments, G,
other firms (and themselves), I, and the rest of the world, NX.
Y = C + I + G + NX
Measuring Canada’s GDP
• Statistics Canada measures Canada’s GDP in two ways:
• Expenditure approach
Y = C + I + G + NX
• Table 20.1 on p. 471 shows Canada’s GDP using the expenditure approach in 2011.
• Income approach:
Sums incomes paid by firms to households.
Wages, salaries, and supplementary labour income + Other factor incomes = Net
domestic income at factor cost
Net domestic income at factor cost + Indirect taxes – Subsidies = Net domestic
income at market prices
Net domestic income at market prices + depreciation = GDP (income approach)
GDP (income approach) + statistical discrepancy = GDP (expenditure approach)
• Table 20.2 on p. 472 shows Canada’s GDP using the income approach in 2011.
Nominal GDP and Real GDP
• Because GDP in 2012 was greater than in 2011, we know that one or two things must have
happened during 2012:
We produced more goods and services in 2012 than in 2011
We paid higher prices for our goods and services in 2012 than we paid in 2011
• Economists at Statistics Canada split GDP into two parts.
• One part tells us the change in production, and the other part tells us the change in prices.
• Real GDP is the value of final goods and services produced in a given year when valued at
• By comparing the value of the goods and services produced at constant prices, we can
measure the change in the volume of production.
• Nominal GDP is the value of the final