# 12 putting these all together compensation of

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Unformatted text preview: ital (SNA2008, paragraph 7.12). Putting these all together: Compensation of employees + Gross Operating Surplus + Gross Mixed Income + Taxes less subsidies on products = GDP Economics 104 9 Key Concept: Circular Flow of Income The three di↵erent measures are all equal (in principle): Production = Expenditure = Income If something is produced (Production), somebody buys it (Expenditure), and the revenue from those sales are distributed as income (Income). Aside: Gross versus Net Investment Over time, physical capital depreciates. Gross investment includes new physical capital as well as the replacement of existing physical capital. Net investment refers to investment that adds to the existing capital stock. Economics 104 10 Nominal versus Real GDP Nominal GDP is the market value of ﬁnal goods and services in a year measured using the prices for that year. (Called current prices.) Comparing Nominal GDP for di↵erent years will have both changes in volume as well as changes in prices. Real GDP controls for the di↵erences in prices so that we can isolate the volume e↵ect (the di↵erence in real economic activity ). Constant base year method : use prices from a base year to recalculate the value of GDP. Associated with real and nominal GDP is the GDP Deﬂator Real GDP = Nominal GDP ⇥ 100 GDP Deﬂator Chain Fisher Method — currently used by Statistics Canada. A variation of the constant price method. Economy produces two goods: Oil and Wheat Nominal GDP Quantity of Oil Price of Oil Quantity of Wheat Price of Wheat Nominal GDP 2002 100 100 100 150 25000 2008 110 120 120 175 34200 10% 20% 20% 17% 37% Change Real GDP using 2002 Prices Quantity of Oil 2002 Price of Oil Quantity of Wheat 2002 Price of Wheat Real GDP (2002) 2002 100 100 100 150 25000 2008 110 100 120 150 29000 10% 0% 20% 0% 16% Change GDP Deflator 2002 100.0 2008 117.9 Change 18% Economy produces two goods: Oil and Wheat Nominal GDP Quantity of Oil Price of Oil Quantity of Wheat Price of Wheat Nominal GDP 2002 100 100 100 150 25000 2008 110 120 120 175 34200 10% 20% 20% 17% 37% Change Real GDP using 2002 Prices Quantity of Oil 2002 Price of Oil Quantity of Wheat 2002 Price of Wheat Real GDP (2002) 2002 100 100 100 150 25000 2008 110 100 120 150 29000 10% 0% 20% 0% 16% Change GDP Deflator 2002 100.0 2008 117.9 Change 18% Economy produces two go...
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## This homework help was uploaded on 03/03/2014 for the course ECON 104 taught by Professor Voss during the Spring '10 term at University of Victoria.

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