Week_2 - ECMA06 National Income 1 Measurement of National...

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ECMA06 – National Income Measurement of National Income – GDP Outline Why we want to measure output? The 3 approaches to measure national income – the expenditure approach, the income approach, and the value- added approach. Other issues related to national income – gross national income vs. net national income, GDP vs. GNP, Nominal GDP vs. Real GDP, GDP deflator. Why We Want to Measure Output? A measure of the country’s economic activity – what kind of goods and services we produced? What are the levels of production? A simple way to measure our standard of living and compare it other countries. If we have an aggregate price, we need an aggregate output; otherwise we cannot do a demand and supply diagram. 1
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ECMA06 – National Income 1)How To Measure Aggregate Output We call the aggregate output as Gross Domestic Product (GDP) – the total value of goods and services produced in the economy during a given period. There are 3 ways to measure GDP: 1)The expenditure approach 2)The income approach 3)The value added approach Note: The government uses both the expenditure approach and income approach to measure GDP. The Expenditure Approach The expenditure approach, sometime called gross domestic expenditure (GDE), adds up the expenditure needed to purchase the final output produced during a given period. Total expenditure is the sum of 4 major broad categories: 1)Consumption (C) – spending by households on goods and services. 2
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ECMA06 – National Income 2)Investment (I) – spending on goods that are not for present consumption. There are 3 types of investment: i) Business fixed investment – the purchases of capital equipments, machinery and production plants. ii)
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This note was uploaded on 06/18/2011 for the course ECMA 06 taught by Professor Dr.atamazaheri during the Spring '10 term at University of Toronto.

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Week_2 - ECMA06 National Income 1 Measurement of National...

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