Chapter 20: Measuring Gdp & Economic Growth

Chapter 20: Measuring GDP & Economic Growth

GDP: market value of all final goods/services produced in a country in a period

        - final good/service: bought by final user during that period

        - intermediate good/service: used as a component of a final good/service

Consumption expenditure: total payments by firms/households for goods/services

Government expenditures: total payments by governments for goods/services

Net taxes: taxes paid to governments – transfer payments received from governments

        - transfer payments: $ paid by gov to household (EI, social security, subsidies)

Net exports: exports – imports

Saving: $ leftover in households after paying net taxes and consuming goods/services

Aggregate (total) income/expenditure = Consumption expenditure + Government expenditures + Investment + Net exports = GDP

National saving = private saving + government saving/surplus

Investment is financed through:

1. Private saving (more saving = more $ to invest = more investments)

2. Government budget surplus (surplus = more $ to invest = more investments)

3. Borrowing from other countries (X > M = Canadians invest; X < M = ROW invests)

        ** Investment = purchase of

Flow: quantity for duration of time (saving and investment)

Stock: quantity at a point in time (wealth and capital)

Wealth: value of all the things people own; increases as savings increase

Capital: sum of property, plant, equipment, raw materials, and intermediate goods

        - investment increases capital

        - depreciation/capital consumption: capital lost due to usage and obsolescence

        - gross investment: $ spent on buying new capital & replacing depreciated capital

        - net investment = gross investment – depreciation/capital consumption

Measuring GDP:

- expenditure approach: Personal expenditures + Business Investment + Government expenditures + Net exports

- income approach: Net wages (and supplementary labour income) + Corporate profits + Net interest for households + Farmers’ income + Income from non-farm unincorporated businesses + Indirect Net Taxes + Depreciation