Houses the capital stock increases from one year to

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Unformatted text preview: in the economy (all buildings, equipment, and houses) The capital stock increases from one year to the next as a result of investment However, not all investment expenditure is devoted to increasing the capital stock Because the capital stock is constantly wearing out (i.e., depreciating), part of the investment is devoted to replacing worn out capital Net investment is gross investment minus depreciation increase'in'capital'stock What is reported in GDP is gross investment © Gustavo Indart Slide 13 Government Expenditure Government spending (federal, provincial, and municipal) on goods and services is the second largest component of GDP It includes the salaries of all government employees and expenditures on such items as road paving, military airplanes, and advertising It does not include transfer payments such as welfare payments and interest payments on the national debt Transfer payments are not payments for the service of a factor of production © Gustavo Indart Slide 14 Net Exports Exports are added in as they represent spending by foreigners on Canadian goods and services Imports are subtracted since they represent the part of domestic spending that is not on domestically produced goods and services Consumption, investment, and government expenditure include spending on both domestically produced and foreign produced goods To obtain total spending on domestically produced goods (GDP), imports must be subtracted © Gustavo Indart Slide 15 The Income Approach Those Canadians who contribute towards the production of GDP receive income for their services The value added in production – the difference between the revenue from selling the product and the cost of the intermediate goods used in its production – must be somebody’s income (wages, rent, interests, and profits) But not all the value added goes to the owners of the factors of production Part of GDP goes as depreciation (which is a cost of production) and thus can’t be counted as part of income Also GDP is valued at market prices which include indirect taxes (and this part of GDP goes to the government) © Gustavo Indart Slide 16 Net Domestic Income The part of value added that goes to payment to the different factors of production is called Net Domestic Income (NDI) Net domestic income is equal to GDP minus indirect taxes and minus depreciation (or capital consumption allowance) Net domestic income is also equal to the sum of all the different sources of income: wages and salari...
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