Lecture - economics
2
National Income Accounting Gross Domestic Product (GDP) 1. Currently produced - not sales of used items 2. Market prices - at market prices, including indirect taxes a. Imputed rent to owner's occupied houses 3. Exchanged in market - doesn't include illegal transactions GDP = value of all final good produced in Canada during a period of time 1. Production: value added in production 2. Expenditure: total expenditure on final goods and services 3. Income: total income earned by production Measuring GDP 1. Production Value of final goods and services produced in country (avoids double counting) Value added = revenue selling product - amount paid for product 2. Expenditure GDP = Consumption + Investment + Government + Net Exports ○ Investment expenditure includes private investment but not gov. investment Flow of net capital -> Gross Investment not net investment ○ ○ Government expenditure includes investment, but not transfers and interest GDP = C + I + G + NX 3. Income Value added in production = income GDP includes indirect taxes - subsidies Net Domestic Income NDI = GDP - net indirect taxes - depreciation = part of GDP that goes to payment of owners Also called Net Domestic Product at factor cost Net Domestic Product at market prices = GDP - depreciation = salaries + profits + interest + rents + net income of unincorporated business Personal Income Personal Income (PI) = NDI - profits + dividends + transfer payments + interest on govt. debt Personal Disposable Income (PDI) = consumption expenditure + saving GDP vs GNP GDP = production within Canada of Canadian & non-resident production National Income of country GNP = production within & outside Canada of only Canadian production. Real vs. Nominal GDP Changes because output and market price change Nominal GDP = value of output in current dollars (current period prices) Only changes because output changes Real GDP = value of output in constant dollars (base period prices) Lecture Wednesday, December 09, 2015 7:34 PM Chapter 2 Page 1
description
economics lecture at uoft
Transcript of Lecture - economics
National Income Accounting
Gross Domestic Product (GDP)
1. Currently produced - not sales of used items2. Market prices - at market prices, including indirect taxes
a. Imputed rent to owner's occupied houses3. Exchanged in market - doesn't include illegal transactions
GDP = value of all final good produced in Canada during a period of time
1. Production: value added in production2. Expenditure: total expenditure on final goods and services3. Income: total income earned by production
Measuring GDP
1. ProductionValue of final goods and services produced in country (avoids double counting)Value added = revenue selling product - amount paid for product
2. ExpenditureGDP = Consumption + Investment + Government + Net Exports
○ Investment expenditure includes private investment but not gov. investmentFlow of net capital -> Gross Investment not net investment○
○ Government expenditure includes investment, but not transfers and interest
GDP = C + I + G + NX
3. IncomeValue added in production = incomeGDP includes indirect taxes - subsidies
Net Domestic IncomeNDI = GDP - net indirect taxes - depreciation = part of GDP that goes to payment of owners
Also called Net Domestic Product at factor costNet Domestic Product at market prices = GDP - depreciation
= salaries + profits + interest + rents + net income of unincorporated business
Personal IncomePersonal Income (PI) = NDI - profits + dividends + transfer payments + interest on govt. debtPersonal Disposable Income (PDI) = consumption expenditure + saving
GDP vs GNPGDP = production within Canada of Canadian & non-resident production
National Income of countryGNP = production within & outside Canada of only Canadian production.
Real vs. Nominal GDP
Changes because output and market price changeNominal GDP = value of output in current dollars (current period prices)
Only changes because output changesReal GDP = value of output in constant dollars (base period prices)
LectureWednesday, December 09, 2015 7:34 PM
Chapter 2 Page 1
Only changes because output changes
Chain Method of GDPAverages price of current and previous year
GDP Deflator = GDP current prices / GDP base year prices x 100
CPI = consumer goods current prices / consumer goods base prices x 100CPIX = CPI - volatile prices (i.e. oil, energy, etc.)
GDP vs. CPIGDP is only domestic production, CPI is all purchases (domestic + foreign)
1. Gross investment = net investment (no depreciation)2. GDP = NDI (no indirect taxes/subsidies)3. Y = GDP = NDI
ASSUMPTIONS
1. Taxes = Transfer payments = 0, Imports = Exports = 0, Profits = Dividends2. Y = S + I3. GDP = NDI = PI = PDI = Y = YD 4. Y = C + S5. C + I = C + S6. S = I
IMPORTANT (1)
1. GDP = NDI = GNP + Profits = Dividends2. Y = C + I + G + NX3. YD = Y - TA + TR = C + S4. C = Y - TA + TR - S5. Y = (Y -TA + TR - S) + I + G + NX6. S = I + (G + TR - TA) + NX
IMPORTANT (2)
G + TR - TA = government budget deficitNX = net exports (trade surplus)
National Saving = Private Saving + Public SavingNS = S + PS (or Government Budget Surplus - BS)
Chapter 2 Page 2
