03.ECON202 Jan 11 2011

03.ECON202 Jan 11 2011 - Econ 202 Jan 6, 2011 Gross...

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Econ 202 Jan 6, 2011 Gross domestic Product (GDP) – the value of final foods and services produced within an economy in a given time period. Income Approach, Expenditure Approach, and the Circular Flow - total expenditure on domestically- produced final foods and services - Total incomes earned by domestically located factors of production Expenditure equals income because every dollar spend by a buyer becomes income to the seller The Circular Flow Labour Household Firms Goods The money flow Income Household Firms Expenditure Definition: A firm’s value added is the value of its output minus the value of the intermediate goods the firm used to product that output Example - A farmer grows a bushedl of wheat and sells it to a miller for $1.00 - The miller turns the wheat into flour and sells it to a baker for $3.00 - The baker uses the flours to make a loaf of bread and sells it to an engineer for $6.00 - The engineer eats the bread Value Added Farmer $1 Miller $2 Baker $3 GDP $6 The expenditure components of GDP - Consumption (C) - Investment (I) - Government purchases (G) - Net exports (NX) = Exports – Imports Consumption (C): the value of all goods and services bought by households - Durable goods : last a long time. E.g. Cars, home appliances - Nondurable goods: last a short time. E.g. food, clothing
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- Services: work done for consumers. E.g. dry cleaning Investment (I) Definition 1: spending on [ The factor of production] Capital Definition 2: spending on goods bought for future use Includes: - Business fixed investment: spending on plant and equipment that firms will use to produce other goods & services - Residential fixed investment: spending on housing units by consumers and landlords - Inventory investment: The changes in the value of all firms’ inventories Stocks Vs. Flows - A stock is a quantity measured at a point in time. -
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This note was uploaded on 03/31/2011 for the course ECON 202 taught by Professor Angelatrimarchi during the Winter '10 term at Waterloo.

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03.ECON202 Jan 11 2011 - Econ 202 Jan 6, 2011 Gross...

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