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Chapter 20

Economics 1022A/B Chapter Notes - Chapter 20: Business Cycle, Environmental Quality, Political Freedom

Course Code
ECON 1022A/B
Jeannie Gillmore

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Chapter 20
4 parts of GDP
Market value – price at which items are traded in markets so we can add values of
multiple goods together
Final goods/services – item bought by its final consumer
Produced within a country – goods produced in Canada count to Canada’s GDP
In a given time – Quarterly, annually, etc.
Expenditure Method: GDP = Y = C + I + G + X – M
Aggregate income method: total paid for the services of a
factor of production (wages, salaries, interest, rent, profit, and
other factors of income
Depreciation - decrease in the value of a firm’s capital that results from wear and tear and
Gross investment – total amount spent on purchase of new capital and on replacing
depreciated capital
Net Investment – increase in the value of a firm’s capital
Net Investment = Gross investment – Depreciation
Real GDP – value of final goods and services produced in a given year when valued at the price
of a reference base year
Nominal GDP – value of goods and services produced during a given year at prevailing prices
Standard of Living
Real GDP per person -
Real GDP
When above potential, economic expansion; below potential means recession
Lucas Wedge – shows us the difference between the potential and real GDP
Business cycle – periodic but irregular up-and-down movement of total production and other
measures of economic activity (expansion and peak, recession and trough)
Standard of Living across Countries
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