16. ECON202 Mar 10 2011

16. ECON202 Mar 10 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 - The miller turns the wheat into flour and sells it to a baker for - 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. - A flow is a quantity measured per unit of time. http://en.wikipedia.org/wiki/Stock_and_flow Government Purchases (G) - includes all government purchase on goods and services - Government spending = government purchases + transfer payment Net Export (NX) - NX is the value of total exports (EX) minus the value of total imports (IM) - Y = Value of output = C + I + G – NX / Aggregate Expenditure GNP Vs. GDP Gross National Product (GNP) Total income earned by the nation’s factors of production, regardless of where Gross Domestic Product (GDP) Total income earned by domestically-located factors of production, regardless (GNP – GDP) = (Factor payments from a broad) – (factor payments to abroad) (GNP-GDP) Philippines 9.2%
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Bangladesh 5.1 UK 2.2 USA 0.3 Mexico -1.8 Russia -2.5 El Salvador -3.4 Argentina -5.4 Indonesia -6.5 Panama -7.3 Real Vs. Nominal GDP - Nominal GDP measures GDP using current prices. -
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16. ECON202 Mar 10 2011 - Econ 202 Jan 6 2011 Gross...

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