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Lecture12-ECO100 - Introduction to Introduction to...

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ECO 100Y Introduction to Introduction to Economics Lecture 12: N i l I National Income Accounting © Gustavo Indart Slide 1
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Gross Domestic Product Gross Domestic Product (GDP) is the value of all final goods and services produced in Canada during a given goods and services produced in Canada during a given period GDP i fl f d d i i d f i GDP is a flow of new products during a period of time, usually one year W h diff h We can use three different approaches to measure GDP: ¾ prod ction approach production approach ¾ expenditure approach ¾ i h © Gustavo Indart Slide 2 income approach
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Measuring GDP Production Approach – We can measure GDP by measuring the value added in the production of goods d i i h diff i d i ( i l and services in the different industries (e.g., agriculture, mining, manufacturing, commerce, etc.) Expenditure Approach – We can measure GDP by measuring the total expenditure on final goods and services by different groups (households business services by different groups (households, business, government, and foreigners) Income Approach We can measure GDP by – We can measure GDP by measuring the total income earned by different groups producing goods and services (wages, rents, profits, © Gustavo Indart Slide 3 etc.)
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Flow of Expenditure and Income FACTOR MARKETS Labour, land & capital Labour, land & capital Wages rent & FIRMS HOUSEHOLDS Wages, rent & interest Expenditures on goods & services GOODS MARKETS Goods & services Goods & services © Gustavo Indart Slide 4
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The Production Approach GDP is the value of final goods and services produced in Canada within a year ¾ The emphasis on the word final (goods and services) is important in order to avoid double counting If we were to consider also the value of intermediate goods, then their values would be counted twice: ¾ as an output of the industry producing this intermediate good ¾ as part of the value of the final good of the industry © Gustavo Indart Slide 5 that uses it as an intermediate good
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The Production Approach (cont’d) The Production Approach (cont d) To avoid this double counting we must consider only the value added in each industry or at each stage in the process of manufacturing a good The value added by a firm is the difference between the revenue the firm earns by selling its product and the the revenue the firm earns by selling its product and the amount it pays for the product of other firms it uses as intermediate goods © Gustavo Indart Slide 6
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Example Suppose that the production and sale of bread in a i i d f i i $1000 d h h fl d i given period of time is $1000, and that the flour used in the production of this bread costs $400 Also suppose that $200 worth of wheat is needed to produce this $400 worth of flour What is the contribution of these activities to GDP?
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