Measuring GDP and Economic Growth Gross Domestic Product
• • • • • GDP or Gross domestic product is the market value of all the final goods and services produced within a country in a given time period. A final good (or service) is an item that is bought by its final user during a specified time period. An intermediate good (or service) is an item that is produced by one firm, bought by another firm, and used as a component of a final good or service. Study Figure 20.1 on p. 469 of your textbook. This figure shows the circular flow of expenditure and income and gives the following information: The economy consists of: o Firms o Households o Governments o Rest of world Aggregate economic markets are: o Goods markets (goods and services) o Factor markets (productive resources) Define the following: o Y Income o C Consumption expenditure o I Investment o G Government expenditure o X Exports, M Imports o NX Net exports = X – M Let’s summarize what the circular flow diagram tells us. Households: o Sell factor services to firms and receive incomes = Y o Spend C on goods and services Governments: o Spend G on goods and services The Rest of the World: o Spend NX on goods and services Firms: o Buy the services of factors of production from households and pay incomes Y o Produce goods and services, which they sell to households, C, governments, G, other firms (and themselves), I, and the rest of the world, NX. o Y = C + I + G + NX
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Measuring Canada’s GDP
• Statistics Canada measures Canada’s GDP in two ways: o Expenditure approach o Income approach Expenditure approach o Y = C + I + G + NX Table 20.1 on p. 471 shows Canada’s GDP using the expenditure approach in 2011. Income approach: o Sums incomes paid by firms to households. o Wages, salaries, and supplementary labour income + Other factor incomes = Net domestic income at factor cost o Net domestic income at factor cost + Indirect taxes – Subsidies = Net domestic income at...