1. GDP

2. 3 Economic Goals of a Government
Stable prices
Low unemployment
High and sustained growth

3. How do we get #3? How do we measure high and sustained growth?
Need to see growth of a country’s income
What does a country generate? What goods and services do they produce and sell?

4. What is GDP? Gross Domestic Product
GDP is the total market value of all final goods and services produced in a given time period, within a country’s borders

5. What it does and does not include
Does not include = a Canadian company operating in another country
Does include = a foreign company producing products in Canada

6. Final goods and services?
Only items purchased by the ultimate final consumer are counted, not intermediate consumers
The Wheat example – counting the value of wheat three times
Wheat -> value of wheat and then value of flour; and then value of loaf of bread – you’ve counted value of wheat three times

7. Expenditure approach to GDP
What happens to all the goods and services we produce? Somebody has to buy them.
Purchased by 4 sectors:
1) Household sector (70%)
2) Business sector (machinery, equipment)
3) Government sector (provides services)
4) Foreign sector (exports)

8. GDP Cont’d
GDP is the sum of expenditures by the 4 sectors: consumption; investment; spending; net exports (exports – imports)
GDP = Consumption + investment + government spending + net exports
GDP = C + I + G + X

9. Business Cycle Theory

10. Business Cycle

11. Read
Define business cycle
Take a brief note on the four stages of the cycle (105)
Draw out the chart in your notes (105)
How can the government intervene, according to your text? (107)

12. Test Information Economic and Political Systems
Traditional/Market/Centrally Controlled/Mixed
Democracy and Autocracy
Classification of Economic Development
Underdeveloped/Developing/Developed
GDP and Business Cycle
Definition/Calculation
Different Stages/Indicators/Government Actions

13. Test Information Production Possibilities Frontier (PPF)
Describe what it means to be under/on/over the curve
Opportunity Cost
Absolute and Comparative Advantage
definition and calculation

15. Real vs Nominal GDP
Nominal GDP = current value of goods and services produced at this time
The problem
Yr 1 – nominal GDP is $10
Yr 2 – nominal GDP is $40
Why did GDP increase in yr 2?
? Ideally, bc output of good and services quadrupled?
But … it could go up because prices quadrupled … or bc there was an increase in output and prices

16. Real vs Nominal GDP Real GDP = today’s output at base year prices
Nominal GDP = today’s output at today’s prices
Using the CPI or GDP deflator
GDP deflator = – it’s a price index, like CPI, but it includes all goods and services, rather than just consumer goods and services

17. Calculating Real GDP
How would I calculate my real income? Real income = (Nominal income / CPI) x 100 (Nominal GDP / GDP deflator) x 100

18. Nominal vs Real GDP Why nominal GDP is insufficient
Rising prices vs. rising output or productivity

19. Growth vs. Recession The calculation
If the % change is > 0, the economy is growing
If % change is < 0, the economy is shrinking
If real GDP is < 0 for 2 consecutive quarters, there’s a recession
If real GDP is < 0 for 8 consecutive quarters (2 years), there’s a depression
%changeGDP = (real gdp new – real gdp old / real gdp old) * 100