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Published byMarilynn Cox Modified over 9 years ago
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Statistics Canada keeps track of the Canadian Economy They prepare Canada’s National Income Accounts: accounts showing the levels of total income and spending in the Canadian economy We are able to measure the strength of the Canadian Economy, and compare it to other nations’ economies 8.1 Gross Domestic Product
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One measure that can be developed from the national income accounts is the Gross Domestic Product, GDP: total dollar value of all final goods and services produced in the economy over a given period (typically a year) Final Products: products that will not be processed further and will not be resold (e.g. pad of paper) Income Approach to GDP: involves adding together all the incomes in the economy Expenditure Approach to GDP: involves adding together all spending in the economy Measuring Gross Domestic Product
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In a simple economy, all spending by one person is income for someone else Annual income = annual spending GDP from income approach = GDP from expenditure approach Circular Flow in a Simple Economy
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Statistics Canada calculates the GDP using the Income Approach by summing up the following 7 categories: Wages & Salaries (50% of GDP) Corporate Profits Interest Income Proprietors’ Incomes (including rent) Indirect Taxes (PST) Depreciation (products & tools wear out) Statistical Discrepancy (companies records vs Stats Can estimates) The Income Approach
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Final Products: products that will not be processed further and will not be resold (e.g. pad of paper) Intermediate Products: Products that will be processed further or will be resold (e.g. clothing) Some items are both, for instance: Flour used at home to bake something is a final product Flour used at a bakery to bake and sell something is an intermediate product If both intermediate & final values were included in GDP, we would be double-counting: adding the same item at different stages to GDP – will not reflect the real economy and be too high Categories of Products
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Double-counting is avoided by using the concept of value added: the extra worth of a product at each stage in its production Some products are not included in GDP: Financial Exchanges Gift money or stocks (same value of money is just exchanging hands) Second-hand purchases These products have already been counted at their first sale to a consumer. Including it would be double-counting. Categories of Products
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Personal Consumption (C) Gross Investment (I) Government Purchases (G) Net Exports (X – M) Expenditure Equation shows that GDP is sum of these four types of spending GDP = C + I + G + (X – M) Purchases Included in GDP
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Personal Consumption (C) Non-durable goods: food (consumed just once) Durable goods: care (consumed over time) Gross Investment (I) Purchase of assets intended to produce revenue (e.g. equipment & machines); Capital Stock: total value of productive assets that provide revenue flow Depreciation: decrease in value of durable real assets over time Net Investment: gross investment minus depreciation Personal Savings: funds saved by households Purchases Included in GDP
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Government Purchases (G) Current government spending on goods and services (e.g. battleship, road repair) Transfer payments: government payments to households or other levels of governments Net Exports (X – M) Exports (X) – part of total spending in product markets Imports (M) – deductions from total spending Purchases Included in GDP
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