Topic 4_ Measuring Total Production Flashcards
Micro vs Macro
Income
Output
Spending
Micro:
-One person’s income
-What a firm produces
-Individual spending, or house spending, or girms spending
Macro:
-Total income of whole ocuntry
-Total output of all firms
-Total spending from all houses, govt, and firms
GDP
THE MARKET VALUE OF ALL FINAL GOODS AND SERVICES PRODUCED IN A COUNTRY DURING A PERIOD OF TIME
THE MARKET VALUE OF ALL FINAL GOODS AND SERVICES PRODUCED IN A COUNTRY DURING A PERIOD OF TIME
THE MARKET VALUE OF ALL FINAL GOODS AND SERVICES PRODUCED IN A COUNTRY DURING A PERIOD OF TIME
What period of time is gdp usually measured in
one year
Why do we consider the MARKET VALUE of goods in gdp
because we need to know the dollar value of a g/s
UNIFROM UNIT
we cant sum the quantity of haircuts and nail clippers and cars?? bc it dont make sense
How is market value calculated
makret prices
What 3goods does gdp not account for
Barter an unpaid
underground econ
INTERMEDIATE GOODS HSAWDUAWYF;O8EFYOIEHSRO;GWIE
What is a final good and why is only this used in gdp
FINAL GOOD: BOUGHT TO CONSUME/USE coompletely
we do not count intermediate goods that are used as input in production because we do not want ot double count
What year is a good counted in when considering GDP
WE CARE ABOUT WHEN THE GOOD IS PRODUCED NOT WHEN IT IS SOLD!!!!!
CUrrent production is also counted
Does it matters wo produces the good in a country in ggdp
NO! citizens foreigners none of it matters all that matters is that it is produced in a country
Basic GDP market value calculation
(Price x Quantity of Good 1)+(Price x Quantity of Good 2) = GDP
4 Ways of measuring gdp
- market value method
- total income sum method
- sum of value added method
- total spending/expenditure method
Market value of all FINALLL g and s- GDP measuring method
Price x Quantity of each good summed up
Sum of total incomes (WRIP) method of calc GDP
GDP can be measured by the total income (Wages, rent, interest and profits) recieved by HOUSEHOLDS
Sum of Val added method of calc GDP
what is value added?
what is the idea?
what is the formula?
QUIRK!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!
VALUE ADDED: extra market value a firm gives a product
DIFFERENCE BETWEEN WHAT A FIRM BOUGHT THE (intermediate) GOOD FOR and the price it sells it for
VAL ADDED= VAL OF PRODUCTION- VAL OF INTERIM GOOD
QUIRK:: look at each firm individually!! do even the intermediate goods have intermediate good? each get own formula application
Total Spending/Expenditure approach calc gdp
GDP can be emasured by total spending on g/d by households, firms, govt, and world
4 components of GDP
C+I+G+X-Q
C+I+G+NX
Consumption : spending by households on g/s
Investment: purchase of capital by firms
Government spending: govt spending on consumption goods and capital
Net Exports: spending by rest of the world (EXPORTS-IMPORTS)
X= IMPORTS
Q=IMPORTS
Investment- 3 types, inventory formula
spending by firms on capital (goods that will be used in the future to produce more goods)
non-residential (machines, tools)
residential (factories, offices)
inventroy (goods produced but not sold yet)
INVENTORY= PRODUCTION- SALES
Consumption
-what’s a durable good
spenidng on goods and services
even “DURABLE” goods, long lasting goods like washing machines
Inventory formula+ meaning
Inventory= Production- Sales
Positive #: Inventory investment positive
Negative #: Invenotry investment negative
Government Spending
WHAT DOES THIS NOT INCLUDE
total spednign by all branches of government
DOES NOT INCLUDE GOVT SPENDING THAT DOESNT PRODUCE NEW GOOD OR SERVICE (dont include govt transfers/EI/social program)
Net Exports (X-Q)
Exports-Imports
exports: g/s produced in caanada that will be consumed by people in other countries
Imports: g/d produced outside canada that consumed domestically
Exports> Imports Trade surplus
Exports< Imports Trade deficit
Gross National Income (GNI)
value of incomes recieved by Canadians regardless of where they were located
(Canadians working in foregin countries)
(canadian business operating overseas)
GNI formula
GNI= GDP + income recieved by Canadians outside Canada - income recieved by foreginers in canada
shortcomings of gdp
household production
underground econ
barter transactions and unpaid labour
household production
g/d people produce for thesemlves
undergroun econ: black market
barter/unpaid: services that people prodive for in-kind paymentrs or for free
why is gdp not a perfect measure of well being
DOES NOT INCLUDE LEISURE VALUE
not adjusted for pollution or negative effect of production
IGNORED HOW INCOME IS DISTRIBUTED
Growth rate formula
Last-First/First x 100
HOw to get average growth rate
get growth rate of every year
average out the growth rates
Rule of 70
of years to double value = 70/ annual growth rate
how many years will it take to double the value
REAL gdp vs Nominal gdp
Nominal gdp: value of final goods and services evaluated at current year prices
INCREASES OVER TIME DUE TO PRICE/ PRODUCTION INCREASE
Real: value of final goods services calculated at base-year prices!!
Why is nominal gdp not the best,
nominal gdo comes from the (PxQ) formula, so if Pp or Q goes up then nominal gdp also goes up!!!!!!!! easily affected
why is real gdp the best
by keepign prices constatn, changes in real gdp represent the chang ien the quantity of g/s producedi n economy
as long as you have one constant base year then every growth rate will be the same !!
you are fixing prices so only PRODUCTION CAN BE DIFFERENTTTTTTTTTTTT
REAL GDP VS NOMINAL GDP MAIN DIFF
NOMINAL GDP: P x Q (neither is fixed)
REAL GDP: P x Q but P is fixed in base year!!!!
MAJOR THING ABOUT EXPENDITURE APPROACH
CONSIDER WHEN THINGS ARE BOUGHT (bc this one is about spending)!!! instead of focusing when things are produced
Why are transfer paymetns and social programs not included in Government spending
they add no value
why do all 4 methods equal the same value of gdp
because of circular flow diagram!!! the money is the same it is jus moving hands
When graphed on a line chart
-what does it mean when rela gdp is increasing!!!
-nominal gdp increasing
-when real gdp is higher than nominal
-when nominal and real gdp cross
=If real GDP is increasing CAN ONLY mean increase in production
=If nominal GDP is increasing COULD mean increase in production or prices
=If real GDP is higher than nominal GDP, means that Production is higher and Price is lower
=Nominal and Real GDP cross when it is the selected Base year
