Chapter2_MacroConcepts

Chapter2_MacroConcepts - 21 Topic 2: Some Basic...

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Topic 2: Some Basic Macroeconomic Concepts Gross Domestic Product – GDP - is the market value of all final goods and service produced with in a country (as well as income earned) - in a given period of time (such as a year) - valued at market prices 2-1
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(1) Important Facts about GDP: - GDP is basically a production concept - GDP is a flow variable - Market value 2-2
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Example: Item Price Quantity CDs $15 1000 Tapes $ 5 2000 o Calculate GDP by multiplying P * Q for each  good and then adding your results together 25000 2-3
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Important Facts about GDP continued… In the national accounts, firms and governments are the units  which produce output in the domestic economic . GDP includes only final goods not intermediate goods 2-4
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Items not included in GDP: - used or second hand goods - non-marketed goods and servies - financial assets 2-5
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How do we actually measure GDP?  Three Methods: o Value-added (production) Approach  o Expenditure Approach o Income Approach 2-6
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Value-Added Example Col (i) Col (ii) Col (iii) Col (iv) = Col (ii – iii) Stage of  Production Total  Value Cost of  Intermediate  Products Value Added =       Total  Value - Cost of Intermediate  Products Sheep ranch 60 0 60 Wool processor 100 60 40 Suit  manufacturer 175 100 75 Retail outlet 250 175 75 250 Contribution to GDP: 250 2-7
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Total value of all transactions:  2-8
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Income Approach Factors Compensation Land Rent, Labour Capital depreciation Entrepreneurship Profit, interest and div 2-9
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Income Approach to Measuring GDP (this is in the notes, don’t copy) First determine:  o Net Domestic Income at Factor Cost o Wages, salaries and supplementary labour income  o Corporate profits before taxes 2-10
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o Government enterprise profits before taxes 2-11
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This note was uploaded on 07/12/2010 for the course ECON 202 taught by Professor Angelatrimarchi during the Spring '10 term at Waterloo.

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Chapter2_MacroConcepts - 21 Topic 2: Some Basic...

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