Theme 3 : Economic indicatorsv1.0

Part I: GDP and Economic Growth

Principle # 8: The standard of living of a country depends on its ability to

produce goods and servicesWe can represent this principle by the following circular flow:– Production income consumption production

What in the Gross domestic product?

• The Gross Domestic Product (GDP) is the monetary value of the total production of

final goods or services produced in an economy during a given period

For example :

Canadian GDP in 2012, is the monetary value (market price) of all product and services has been produced in Canada from January 1 to December 31.

around 1 474 Billions $ US1 according to the World Factbook

What is the use of GDP?

• A tool for comparing countries' wealth (GDP

per capita)• A measure of the economic growth of a

country

What are national accounts?

It is the calculation of gross domestic product.

We must proceed very methodically.

What are the basic concepts of the national accounts?

1st Production is purchased by a user and gives rise to an expense.

2nd Production gives rise to manufacturing revenues.

How do we measure GDP?

• of expenditures generated from the production of goods and services.• of incomes generated from the production of goods and services.

• expenditures = GDP = incomes

How do we measure GDP by expenditure?

GDP = C + I + G + X – M

Everything that was purchased had to be produced. So calculating the value of everything we buy is gives us indirectly the value of what was produced.

What is the difference between final goods and intermediate

goods? Final goods are intended solely for the end

user. We calculate only this production to assess GDP.

A good is qualified as intermediary, when it is used in the production of another good.

Why should we add the value of exports and remove the value of

imports?• Canadian exports means a production

undertaken in Canada but purchased by an economic agent from another country.

• Canadian imports means a production done abroad but purchased by economic agents in Canada.

Should never count the same property more than once …

• Intermediate goods • Used Goods

How do we measure GDP by the income approach?

GDP = Wages + profit + interest + rent.

The production of goods and services generates revenue. So by calculating all income from the production, the value of production can be obtained.

Warning…

Only income from the production of goods and services are recognized excluding transfer payments (unemployment insurance, pensions ...).

What is the difference between real GDP and nominal GDP?

• Nominal GDP measures the value of domestic production prices from the current year (GDP in current dollars).

• Real GDP measures the value of domestic production from the prices of a base year (constant dollars)

How do you get real GDP from nominal GDP?

tt

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Nominal GDPReal GDP = x100

Deflator

Nominal GDPDeflator x100 = x100

Real GDP

Nominal GDP

Real GDP

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t t

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a et ts

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Some limitations of the GDP

• It does not cover non-market activities

• It says nothing about the general welfare of the population

• He said nothing the quality of the environment

GDP per capita is a good indicator of the standard of living of a population?

What is economic growth?

• Economic growth measures the change in the volume of production of an economy from a period to another

• Economic growth is measured using real GDP.

How do we measure economic growth?

Between n periods the growth rate can be calculated as

100 1 100

100

1 100

t t n t

t n t n

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Q Q Qgrowthrate

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GDP GDPgrowthrateGDP

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