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Chapter

ECON2000-CH2.docx


Department
Economics
Course Code
ECON 2000
Professor
Mokhles Hossain

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ECON2000- Textbook Notes (4th Ed.)- By: Jessica Gahtan
Chapter 2: The Data of Macroeconomics
- Economic data, in the present, offers a systematic and objective source of
information
- Most statistic are produced by the government
oGovernments conduct surveys from which statistics are computed that
summarize the state of the economy
Gross Domestic Product (GDP): This tells us the nations total income and the total
expenditure on its output of g/s
Consumer Price Index (CPI): Measures the level of prices
Unemployment Rate: Tells us the fraction of workers who are unemployed.
GDP (measuring the value of economic activity)
- Statistics Canada computes this: (1) every 3 months, (2) from a large number of
primary data sources that include both administrative and statistical data
oAdministrative Data: byproducts of government functions, i.e. tax
collection, educational programs and regulation
oStatistical Data: Come from government surveys of, for example, retail
establishments, manufacturing firms and farm activity
- Purpose of GDP: to summarize all these data into a single number that represents
the total dollar value of economic activity in a given time period
GDP equals the total value of all final goods and services produced within Canada
during a particular year or quarter.
IF if were the case that (1) no Canadian worker had a job in another country, (2) no
foreigner had a job in Canada, and (3) all machines and factories used both here and
elsewhere were owned by domestic residentsTHEN this value of goods produced would
also measure the total value of Canadians incomes.
oGDP is actually the total income earned domestically- it includes income
earned domestically by foreigners, but it doesn’t include income earned by
domestic residents on foreign grounds
oThe total income earned by Canadians includes the income that we earn
abroad- but it doesn’t include the income earned within our country by
foreigners
How can we use GDP to help us in understanding the economy?
- If we want to:
oStabilize employment:
We can use it as a broad measure of job-creating activity within
Canada
oEvaluate trends in the standard of living of Canadians
We would subtract the portion of our GDP that represents income
to foreigners
This adjusted figure is reported by ‘Statistics Canada in the
Balance of International Payments account
To understand the magnitude of the difference between
GDP and the portion that represents Canadian incomes
consider 2 years:
1

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ECON2000- Textbook Notes (4th Ed.)- By: Jessica Gahtan
o1993: 3.7% of Canadian GDP represented income
for foreigners
o2008: Under 1% represents income to foreigners
Why? Government embarked on an effort to eliminate its
budget deficit, which decreased the government’s debt and-
by definition- the indebtedness of all Canadians with the
rest of the world. This lower indebtedness means that
Canadians now own a bigger fraction of the machines and
factories that operate within the country than we did back
then
- When we subtract off the foreign income portion of our GDP, the timing and size
of the cyclical swings in the resulting series and in the GDP itself are almost
identical
- We assume that GDP equals:
oThe total output of g/s
oTotal value added of g/s…
oThe total income of all individuals
oThe total expenditure of all individuals
National Accounting: the accounting system used to measure GDP and many related
statistics
Income, expenditure, and the circular flow
- GDP measures the flow of dollars in this economy
- GDP is the total income (top half of circular flow) and total expenditure (bottom
half of circular flow)
oTo compute GDP you can either look at the top half or the bottom half
- The two ways of computing GDP must be equal because the expenditure of
buyers on products is, by the rules of accounting, income to the sellers of those
products
FYI
Stock: a quantity measured at a given point in time
Flow: a quantity measured per unit of time
- Stocks and flows are often related
- When building theories to explain economic variables, it’s often useful to
determine whether the variables are stocks or flows and whether any relationship
links them
Stock Flow
2
Income ($)
Labour
FirmsHouseholds
Goods (bread)
Expenditure ($)
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