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Chapter 2

Chapter 2 Notes.docx

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Department
Economics
Course
ECON 1000
Professor
All Professors
Semester
Fall

Description
Econ Chapter 2 NotesGDPNations total income and total expenditure on its output of goods and services CPIMeasures the level of pricesGDP is computed from administrative by products of govt functions like tax collection and statistical data government surveys GDPMarket value of all final goods and services produced within an economy in a given period of timeGDP would measure total value of Canadian income if all Canadian workers worked only in Canada no foreigner worked in Canada and machines and factories everywhere owned by domestic residentsGDP is total income earned domestically including domestic foreignersnot a perfect measure since income is received from individuals owning capital equipment in other countries To measure standard of living of Canadian we subtract the part of GDP that represents income to foreigners Figure reported in Balance of International Payments account by Statistics CanadaAssume that GDP measures Total Output of GS Total income of all individuals and total expenditure of all individuals Economy income and expenditure are really the same for the economy IE MustNational Accountingaccounting system used to measure GDP and other statisticsCircular FlowHouseholds sell labor to firm firm uses labour to produce good and sells to household inner loopHousehold buys good from firm and firm use revenue to pay wages and owners who are apart of household sector outer loopGDP can be total income or total expenditure as income and expenditure affect each other and increasedecrease equally GDP combines value all many gs into a single measure different values of diff products makes it hardTo compute total value of different gs national accounts use market prices which reflect how much people will pay for a gs Ex Apple05 and Orange100 GDPPApple x QApplePOrange x QOrange05x41x35GDP5 which is the value of all the apples 200 plus oranges 300 Stockquantity measured at a given point in timeFlowquantity measured per unit of timeGDP is a flow variablehow muchare flowing around economy per unit of time 16 GDP PER YEAR Examples Persons wealth is a stock income and expenditure are flowsNumber of unemployed people is a stock number of people losing their jobs is a flow Government debt is a stock budget deficit is a flow Used GoodsGDP measures value of currently produced goods and services so an old rare product would not add to GDP when sold transfer of asset previously made If you produced
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