17. ECON202 Mar 17 2011

17. ECON202 Mar 17 2011 - Econ 202 J an 6, 2011 Gross...

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Unformatted text preview: Econ 202 J an 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 firms 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 Compute & compare value added at each stage of production and GDP 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- 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 nations factors of production, regardless of where located Gross Domestic Product (GDP) Total income earned by domestically-located factors of production, regardless of nationality. (GNP GDP) = (Factor payments from a broad) (factor payments to abroad) (GNP-GDP) Philippines 9.2% 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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17. ECON202 Mar 17 2011 - Econ 202 J an 6, 2011 Gross...

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