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ECON 1010 (256)
Chapter 20

ECON 1010 CHAPTER 20 TEXTBOOK NOTES.docx

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Department
Economics
Course Code
ECON 1010
Professor
Manzur Malik

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ECON 1010 CHAPTER 20 TEXTBOOK NOTES CHAPTER 20 – MEASURING GDP AND ECONOMIC GROWTH Gross Domestic Product GDP Defined ­ GDP = the market value of the final goods and service produced within a country  in a given time period. ­ A final good (an item that is bought by its final user during a specified time  period) contrasts with intermediate good (an item that is produced by 1 time,  bought by another, and used as a component of a final good) ­ Some goods can be final goods in 1 situation and intermediate goods in another ­ Some goods are neither final goods nor intermediate goods. (ex. Financial assets – stocks and bonds­, secondhand goods –a second good was part of the GDP in the  year in which it was produced) ­ If a Canadian firm produce T­shirts in Taiwan, then the market value of those  shirts is a part of Taiwan’s GDP ­ GDP measures not only the value of total production but also total income and  total expenditure ­ Rising income and rising value of production = increased productivity GDP and the Circular Flow of Expenditure and Income Households and Firms ­ Households have consumption expenditures (C) ­ Firms have investments (I) Governments ­ Government expenditures (G) ­ Taxes and money transfers are NOT a part of GDP Trades ­ exports (X) – imports (M) is called net exports GDP ­ can be measured in 2 ways: 1) the total expenditure on goods and services or 2)  total income earned producing goods and services ­ gross investment = the total amount spent both buying new capital and replacing  depreciated capital ­ net investment = the amount by which the value of capital increases (gross  investment – depreciation) ­ gross investment is included in the expenditure GDP approach and gross profit is  included in the income GDP approach Measuring Canada’s GDP The Expenditure Approach ­ Consumption (C) DO NOT includes purchase of new homes. They count as  Investments (I) The Income Approach ­ Measure GDP by summing the incomes that firms pay households for the factors  of production they hire (wages for labor, interest for capital, rent for land, and  profit for entrepreneurship) ­ We divide the incomes into 2 broad categories: • Wages. Salaries, and supplementary labor income (payment for labour  services. Ex. Gross wage + benefits) • Other factor incomes (corporate profits, interest, farmers’ income, and income  from non­farm unincorporated business ex. Self employment) ­ An indirect tax is tax paid by consumers when they buy goods and services  ­ A direct tax is a tax on income ­ An indirect tax makes the market price exceed factor cost ­ A subsidy is payment by the government to a producer ­ With a subsidy, factor cost exceeds market price ­ Market price = factor cost + indirect taxes – subsidies (net domestic income at  market price) ­ Gross domestic income = net domestic incom
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