Transcript Gross Domestic Product is - McGraw-Hill

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National Income Accounting measures
economy’s overall performance
Statistics Canada compiles National Income
and Product Accounts
 Assess health of economy
 Track long run course
 Formulate policy
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Gross Domestic Product is:
The main measure of the economy’s
performance
The total market value of all final goods and
services produced annually within the
boundaries of Canada
A Monetary Measure
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Society is willing to pay $1500 more for the combination of
goods produced in year 2 than for the combination of goods
produced in year 1.
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To avoid multiple counting, only final goods
and services are counted
Final goods: Goods and services purchased
for final use and not for resale or further
processing or manufacturing
Intermediate goods are not counted
Intermediate goods: Products purchased for
resale or further processing or manufacturing
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(1)
Stage of production
(2)
Sales value of
materials or product
(3)
Value added
0
Firm A, sheep ranch
$ 120
$120 (= $120 – $0)
Firm B, wool processor
180
60 (= 180 – 120)
Firm C, suit manufacturer
220
40 (= 220 – 180)
Firm D, clothing wholesaler
270
50 (= 270 – 220)
Firm E, retail clothier
350
80 (= 350 – 270)
Total sales value
$1140
Value added (total income)
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Two types of nonproduction transactions:
1. Financial transactions
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Public Transfer Payments
Private Transfer Payments
Stock-Market Transactions
2. Second-hand sales
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The Expenditures Approach: adds up all the
expenditures made for final goods and
services.
The Expenditures Approach adds up
 personal consumption expenditures (C)
 gross investment (Ig)
 government purchases (G)
 net exports (Xn) = exports (X) – imports (M)
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GDP as the sum of all the money spent in buying final goods
and services.
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Net investment
Stock
Depreciation
of
capital
Gross
Investment
Stock of capital
January 1
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GDP as the sum of all the money spent in buying
final goods and services.
 GDP = C + Ig + G + Xn
 For Canada in 2011 (in billions, from Table 5-3):
GDP = $983 + $321 + $436 - $19 = $1721
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The Income Approach: adds up expenditures that are
allocated as income to those producing the output
The Income Approach adds up
 Wages, salaries, and supplementary labour income
 Profits of corporations and government enterprises before
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taxes
Interest and investment income
Net income of farm and unincorporated businesses
Indirect taxes less subsidies on products
Depreciation: Capital consumption allowances
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Net domestic income at factor cost
 All the income earned by Canadian-supplied
factors of production as wages, interest, rent, and
profit.
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Personal income (PI)
 The earned and unearned income available to
resource suppliers and others before the payment
of personal income taxes.
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Disposable income (DI)
 Personal income less personal taxes.
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