ECON20023 T1 2008 Lecture 9

ECON20023 T1 2008 Lecture 9 - ECON20023 ECONOMICS FOR...

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Based on slides from Layton et al (2005) 1 ECON20023 ECONOMICS FOR BUSINESS T1 2008 LECTURE 9 Galina Ivanova, CQU
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2 Key concepts (Chapter 11) What is Gross Domestic Product (GDP)? What is the circular flow of income model? What approaches can we use to measure GDP? What are the main types of expenditure in the economy? Relating saving and investment. Real GDP.
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3 Key concepts (Chapter 12) What is the business cycle? What is economic growth? Business cycle indicators Why do changes in total spending cause GDP to change? Economic growth and the longer term.
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4 Gross domestic product (GDP) GDP is a widely reported measure of a nation’s economic performance. GDP is the market value of all final goods and services produced in a nation’s geographic borders during a period of time, usually a quarter or a year.
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5 GDP and GNP GNP (gross national product) measures the market value of all final goods produced by a nation’s residents, no matter where they are located in the world. GDP and GNP may differ only slightly or very significantly depending upon the importance of international trade to the country.
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6 GDP and the whole economy GDP counts the value of production in all markets for products, resources, consumers, workers and businesses. The circular flow model shows how we can think of all the economy’s sectors in one ‘whole’.
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7 A four-sector circular flow model The four-sector model is more complex and realistic. Part of household income is saved, part is taxed, and part is spent on goods from overseas (imports). These parts could be called leakages from the main flow. Thus we add three sectors – financial markets, government markets and foreign markets.
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8 An open economy
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9 Injections On the other hand: Firms invest in new plants and equipment Government spends on consumption and capital items Foreigners purchase exports. These are called injections – spending that comes into the circular flow.
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10 Flow and stocks Flow is a rate of change in a quantity during a given time period, for example: Weekly consumption Annual income. Stock is a quantity measured at one point in time, for example: the amount of money in a bank account. All measurements in the circular flow model are flows.
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Approaches to measuring GDP The expenditure approach adds all spending for final goods during a period of time. The income approach adds the incomes of all factors of production. Conceptually, both approaches should yield
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ECON20023 T1 2008 Lecture 9 - ECON20023 ECONOMICS FOR...

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