ECON LEC - Jan 11

GDP
- gross - includes depreciation
- only includes market value and final goods/services no double
counting
- has to be produced within Canada
- has to be within a given time period quarterly or annually generally
speaking
- need to know if economy is growing or shrinking and compare to
others
- govt buys goods and services
- households produce goods and services
- households buy consumer goods and services consumption
expenditure (C)
- new homes are investments (though should be consumption)
- if firm is going to make an investment flow is going to go from firm
to investment market then back out to firm
- imports are counted as part of consumption expenditure but it is
included so we have to subtract it off because it wasnt made in
Canada
- considering expenditures in Canada
1. GDP: C+I+G+NX
- Y (income) = C+I+G+NX
-

2010: produces food and fun

100 units of food
50 units of fun
$2 for food, $6 for fun

2011: produces food and fun

75 units of food
65 units of fun
$5 for food
$10 for fun

nominal GDP in 2010: quantity produced at the price prevailing

in 2010
Q 2010 at P 2010 = (100*$2)+(50*$6) = $500
Nominal GDP in 2011: (75*$5)+(65*$10) = $1025

base year method for real GDP

in the first year nominal GDP = REAL GDP
real GDP in 2011 (2010 is base year) = Q produced in 2011 at
prices in 2010

(75*2)+(65*6) = $540

CHAIN METHOD
Q 2010 @ P 2010 base year = $500
Q2011 @ P2010 $540
Calculate % increase in production at 2010 prices
o % is always at initial value
o difference/initial value
o 40/$500 = 8%
Q2010 @ P2011 = (100*5) + (50*10) = $1000
Q2011@ P2011 = $1025
Difference is 25, initial is $1000 = 25/1000 = 2.5%
8+25/2 = 5.25%
Real GDP in 2010 = $500
Real GDP in 2011 = 5.25% greater than $500
Economy grew 5.25%
Find real GDP in 2011 take value ($500) from 2010 and multiply
by 1.0525 = $526.25

GDP doesnt include underground economy or individual labour,

or good health
Does not measure standard of living
Potential GDP : prdn that would occur if all factors of production
were fully employed