Ch 20 - Measuring National Income, GDP

Tuesday, January 24, 2012

2:07 PM

 Gross Domestic Product

 

GDP	The market value of all final goods produced in a country in a given time period   Main measure of economic prosperity or standard of living Measures total value of production in a country Normal a year or a quarter of year
Market Value	Goods value at their market prices
Final good	An item bought by a final user during a specified time period NO financial transactions (transfer payments, stocks, bonds) NO second hand goods
Intermediate good	Item used as an input into a final good or service Not counted to avoid Double Counting

 

 Calculation of GDP

 



 

Expenditure Approach

 

Y	income	GDP (AKA)
C	consumption expenditure	Personal expenditures on consumer goods and services
I	Investment expenditure	Business investment
G	Government expenditure
X	Exports
M	Imports



 

Consumption expenditure	Household spending of goods produced that year
Investment Expenditure	Fixed Investment (equipment) Inventory investment (unsold goods) Residential construction (new houses) *These are all called Gross Investment Net investment is investment less depreciation (Not used for GDP) *Does not include financial assets
Government Purchases	Valued at cost of production (note market value) Usually there is no market value *Transfer payments are not counted (double counted in C)
Net Exports	*Imports is subtracted because it does not generate income domestically.

 

 

Income Approach

 



 

W	Wages, salaries
C	Corporate profits
In	Interest & Miscellaneous investment income
F	Farmers' income
I nonfarm	Income from non-farm unincorporated businesses

 



 



 

Taxes	PST, GST, Excise Taxes
Indirect Taxes	Taxes less subsidies
Depreciation	Asset will eventually need to be replaced

 







 

 

GNP	Total income to residents in Canada (Doesn't matter where that income was generated) Better measure of income of domestic residents

 

Real GDP	GDP valued at the prices of a base year Changes based on quantity produced, not prices
Nominal GDP (GDP)	GDP valued at the prices that prevailed in that same year

 



 

 Uses of Real GDP

• Compare standard of living over time
• Compare standard of living between countries

 

Potential GDP

Value of real GDP when all resources are fully employed (Grows because productivity grows)

 

Business cycle

Expansion Peak Recession Trough

 

 Omissions from GDP

 

• Illegal activities
• Underground economy (avoiding taxes)
• Home production
• Economic "bads" (pollution)