Transcript Chapter 2

Chapter 2:The Measurement and
Structure of the Canadian Economy
National Income Accounts – An accounting
framework to measure current economic
activity.
 Three approaches to measure national
economic activities
1) Product Approach – The amount of goods
and services excluding intermediate goods
and services produced (Value Added).
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2) Income Approach – Income received by
factors of Production
3) Expenditure Approach – Amount of spending
by the ultimate purchasers/buyers
Fundamental Identity of National Accounts
Total Product = Total Income = Total
Expenditure
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Product Approach
Gross Domestic Product (GDP) – The market
value of final goods and services newly
produced in a nation within a specified period
of time.
Gross National Product (GNP) = GDP + Net
Factor Payment from Abroad (NFP)
NFP = Income paid to domestic factors of
production by the rest of the world – Income
paid to foreign factors of production in the
domestic economy.
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The Expenditure Approach
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Gross Domestic Product (GDP) – Total
spending on final goods and services
produced within a nation during a specified
period of time.
Y = GDP = Consumption (C ) + Investment
(I) + Government Purchases (G) + Net
Exports (NX)
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Consumption:
4)
Consumer Durables
Semi-Durable
Non-Durable
Services
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Investment: Inventory Investment + Fixed Investment
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Fixed Investment:
1)
2)
3)
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3)
Residential Construction
Non-Residential Construction
Machinery and Equipment Investment
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Government Purchases – Government
expenditure excluding Transfer Payments
and Interest Payments on the government
Debt.
Net Exports = Exports – Imports
Income Approach
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GDP – Total income received by factors of
production in a nation within a specified
period of time.
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4)
Labor Income
Corporate Profits
Interest and Investment Income
Unincorporated Investment Income
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Net Domestic Product at Factor Prices = 1+2+3+4
1)
2)
3)
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Net Domestic Product at Market Prices = Net
Domestic Product at Factor Price + Indirect Taxes Subsidies
GDP = Net Domestic Product at Market Price +
Depreciation
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Private Disposable Income = Y +
NFP + TR + INT - T
Net Government Income = T – TR
– INT
GNP = Private Disposable Income
+ Net Govt. Income = Y + NFP
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Saving = Current Income – Current
Spending
Private Saving (SPVT) = Private
Disposable Income – C = Y + NFP +TR
+ INT - T- C
Government Saving (SGOVT) = Net
Government Income – Government
Purchases = (T – TR – INT) – G =
Budget Surplus/Deficit
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Uses of Private Saving
S = I + (NX + NFP) = I +Current
Account Balance (CA)
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S = SPVT + SGOVT = I + CA
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SPVT = I - SGOVT + CA
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Nominal Vrs Real Variables
Real GDP = Nominal GDP / GDP
Deflator
GDP Deflator measures the overall level
of prices of goods and services included
in GDP.
Consumer Price Index (CPI) – Measure
of prices of consumer goods
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