ECON 2H03 - CHAPTER 2 NOTES - 1

ECON 2H03 - CHAPTER 2 NOTES - 1 - Gross Domestic Product...

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Gross Domestic Product: Expenditure and Income Two definitions: Total expenditure on domestically produced final goods and services. Total income earned by domestically located factors of production. Expenditure equals income because every dollar spent by a buyer becomes income to the seller. Value added Value added = The value of output minus the value of the intermediate goods used to produce that output GDP is sum of value added at each stages of production Final goods, value added, and GDP GDP = market value of final goods & services (g&s) produced sum of value added at all stages of production. The market value of the final g&s already includes the market value of the intermediate goods, so including intermediate and final goods in GDP would be double-counting. GNP vs. GDP Gross Domestic Product (GDP): Market value of final g&s produced by Domestically-located factors of production during the current
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period, regardless of the nationality
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Unformatted text preview: • Gross National Product (GNP): Market value of final g&s produced by domestic factors of production during the current period. GNP vs. GDP Canadian owned capital and labor (FOP ownerhsip) used abroad produce output and income which is included into Canadian GNP, not GDP. • Foreign owned capital and labor used in Canada produce output and income which is included into Canadian GDP, not GNP. GNP vs. GDP • Net factor payments from abroad ( NFP ) is: • income paid to domestic factors of production by the rest of the world; • minus income paid to foreign factors of production by the domestic economy. • Factor payments: wages, profits, rent, interest • dividends on assets GDP NFP GNP GNP GDP NFP GNP vs. GDP In 2009 Canadian GDP was $1,527 billion and Canadian GNP was $1,506 billion. The 1.4% difference (NFP) arises because of the scale of foreign investments in Canada....
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