Mac2 - ECO 100Y Introduction to Economics Lecture 1...

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© Gustavo Indart Slide 1 ECO 100Y Introduction to Economics Lecture 1: National Income Accounting
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© Gustavo Indart Slide 2 Gross Domestic Product ± Gross Domestic Product (GDP) is the value of all final goods and services produced in Canada during a given period ± GDP is a flow of new products during a period of time, usually one year ± We can use three different approaches to measure GDP: ¾ production approach ¾ expenditure approach ¾ income approach
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© Gustavo Indart Slide 3 Measuring GDP ± Production Approach –We can measure GDP by measuring the value added in the production of goods and services in the different industries (e.g., agriculture, mining, manufacturing, commerce, etc.) ± Expenditure Approach the total expenditure on final goods and services by different groups (households, business, government, and foreigners) ± Income Approach –We can measure GDP by measuring the total income earned by the different participants in the process of producing goods and services (wages, rents, profits, etc.)
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© Gustavo Indart Slide 4 Flow of Expenditure and Income FACTOR MARKETS GOODS MARKETS FIRMS HOUSEHOLDS Labour, land & capital Labour, land & capital Goods & services Goods & services Wages, rent & interest Expenditures on goods & services
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© Gustavo Indart Slide 5 Measuring GDP ± Current Output –GDP includes only the value of output currently produced ¾ For instance, GDP includes the value of currently produced cars and houses but not the sales of used cars and old houses ± Market Prices – GDP values goods at market prices , and the market price of a good includes indirect taxes such as sales taxes and excise taxes ± Not All Goods and Services Are Considered – In general, only the value of goods and services exchanged in the market – except illegal transaction (e.g., drugs)–are included in GDP, but there are some other services arbitrarily added (such as the imputed rent to owners’ occupied houses)
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© Gustavo Indart Slide 6 The Production Approach ± GDP is the value of final goods and services produced in Canada within a year ¾ The emphasis on the word final (goods and services) is important in order to avoid double counting ± If we were to consider also the value of intermediate goods, then their values would be counted twice: ¾ As an output of the industry producing this intermediate good ¾ As part of the value of the final good of the industry that uses it as an intermediate good
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© Gustavo Indart Slide 7 The Production Approach (cont’d) ± To avoid this double counting we must consider only the value added in each industry or at each stage in the process of manufacturing a good ± The value added by a firm is the difference between the revenue the firm earns by selling its product and the amount it pays for the product of other firms it uses as intermediate goods
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Mac2 - ECO 100Y Introduction to Economics Lecture 1...

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