1.  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 ©2013 McGraw-Hill Ryerson Ltd.1Chapter 5, LO1

2.  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 2©2013 McGraw-Hill Ryerson Ltd.Chapter 5, LO1

3. 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. ©2013 McGraw-Hill Ryerson Ltd.3Chapter 5, LO1

4.  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 4©2013 McGraw-Hill Ryerson Ltd.Chapter 5, LO1

5. 5 (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 18060 (= 180 – 120) Firm C, suit manufacturer 22040 (= 220 – 180) Firm D, clothing wholesaler 27050 (= 270 – 220) Firm E, retail clothier 35080 (= 350 – 270) Total sales value$1140 Value added (total income)$350 ©2013 McGraw-Hill Ryerson Ltd.Chapter 5, LO1

6. Two types of nonproduction transactions: 1. Financial transactions  Public Transfer Payments  Private Transfer Payments  Stock-Market Transactions 2. Second-hand sales 6©2013 McGraw-Hill Ryerson Ltd.Chapter 5, LO1

7.  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 (I g )  government purchases (G)  net exports (X n ) = exports (X) – imports (M) 7©2013 McGraw-Hill Ryerson Ltd.Chapter 5, LO1

8.  GDP as the sum of all the money spent in buying final goods and services. ©2013 McGraw-Hill Ryerson Ltd.Chapter 5, LO18

9. .9 Stock of capital January 1 Net investment Stock of capital December 31 Depreciation Gross Investment ©2013 McGraw-Hill Ryerson Ltd.Chapter 5, LO1

10.  GDP as the sum of all the money spent in buying final goods and services.  GDP = C + I g + G + X n  For Canada in 2011 (in billions, from Table 5-3): GDP = $983 + $321 + $436 - $19 = $1721 ©2013 McGraw-Hill Ryerson Ltd.Chapter 5, LO110

11. 11©2013 McGraw-Hill Ryerson Ltd.Chapter 5, LO1

12.  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 taxes  Interest and investment income  Net income of farm and unincorporated businesses  Indirect taxes less subsidies on products  Depreciation: Capital consumption allowances 12©2013 McGraw-Hill Ryerson Ltd.Chapter 5, LO1

13.  Net domestic income at factor cost  All the income earned by Canadian-supplied factors of production as wages, interest, rent, and profit.  Personal income (PI)  The earned and unearned income available to resource suppliers and others before the payment of personal income taxes.  Disposable income (DI)  Personal income less personal taxes. ©2013 McGraw-Hill Ryerson Ltd.Chapter 5, LO113

14. ©2013 McGraw-Hill Ryerson Ltd.Chapter 5, LO114