ECO1011S Week 2 2015 - ECO1011S Macroeconomics I Week 2...

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ECO1011S: Macroeconomics I Week 2: Gross Domestic Production (GDP contd) Readings: M&F 13 & 3, M 2 Leigh Neethling [email protected] First six weeks of term: Rm 3.12 Leslie Social Science Building, thereafter Room 4.09 School of Economics Office hours Tuesday 10-11 Wed 10-11
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Different measures of production Gross domestic product (GDP) National income can be measured by determining what is produced, by looking at spending or at the income claims generated by production These are conceptually identical and may differ in practice only because of measurement error THINK: all outputs (final spending) must also at some point generate claims to income equal to the value of that output (remember our cotton example?) 2
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Expenditure on GDP Valuation at market prices Gross value added (GVA) valued at basic prices Presented using current and constant prices Five main categories
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GDP – spending-based Consumption spending Private spending (C a ) Government spending (G a ) Investment spending (I a ) Changes in inventories Fixed capital formation Net exports (NX a ) Exports (X a ) Imports (IM a ) Total spending on GDP is calculated as the sum of these three spending categories GDP = C a + I a + G a + (X a – Z a ) 4
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GDP – spending-based Private spending - C a Spending on goods and services by individuals during the year Also includes spending by charities Does not include investments (eg stocks and shares, housing construction) Consumption spending: Private spending 5 Durable goods Semi-durable goods Non-durable goods Services
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GDP – spending-based Government spending – G a Government spending on all goods and services (non-capital nature) Again excludes spending on investment goods (eg buildings) Also excludes transfer payments (eg social welfare grants) Two varieties of consumption: Individual consumption expenditure : spending on goods and services consumed by identifiable private individuals (health, education, welfare) Collective consumption expenditure : spending on public goods (defence, law & order, public admin) Note that we value government output at cost rather than market value Consumption spending: Government spending 6 Govt expenditure in national accounts does not equal total govt exp Difference is capital formation
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GDP – spending-based Investment spending (I a ) is the production of goods for future use Changes in inventories Firms hold stocks of their inputs and outputs These represent goods
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