What is GDP?

- Gross Domestic product is the Market Value of all the final goods and services produced
within a country during a given time period.

What is the difference between a final good and an intermediate good?

- A final good is a good that is sold to its end customer during a specified time period. An
intermediate good is sold to X then X uses it as a component of a final good which it
then sells to Y.
For example:
- A final good is the new GMC truck sold from a GMC dealership to its customer (this is
calculated in GDP)
- The tires of the truck that were sold to GMC to put on the truck are not part of GDP,
because it is an intermediate good.
What are things not counted in GDP
- Second hand goods
- Houses being sold (only when the house is built then sold is it counted for GDP.
- Stocks and Bonds
- Government subsidies to firms and people

Why does GDP equal aggregate income and also equal aggregate expenditure?

GDP = aggregate income because the total income of a country will always = the total
expenditure of a country

GDP equals aggregate income and also equals aggregate expenditure because firms pay out
as incomes ( aggregate income) everything they receive from the sale of their output (agfregate
expenditure)

Another equally as valid answer: GDP equals aggregate income and also equals aggregate
expenditure because total production can be measured as the cost of the factors of production
employed or as the sum of expenditure on the goods and services produced.
GDP equals aggregate income and also equals aggregate expenditure because total production can be
measured as the cost of the factors of production employed or as the sum of expenditure on the goods
and services produced.

What is investment and depreciation

- An investment is the purchasing of capital goods made by a Firm

 - Depreciation is the decrease in value (ie money) and the repurchasing of capital
goods because of the wear and tear (ie using the capital goods) on those capital
goods
What is the difference between Gross Investment and Net Investment
Gross investment is the calculation of Investment before subtracting the depreciation and
replacement costs of its capital.
Net investment is the calculation of Investment after subtracting the depreciation and the
replacement costs of its capital.

Draw the circular flow model

What is the difference between Real GDP and Nominal GDP

What is the difference between gross investment and net investment?

Real GDP fell 8.2 percent. Consumption expenditure fell 5​percent, government spending fell 3.8​
percent, exports fell 11.3​percent, and imports fell 10.7 percent.
​Source: business.financialpost.com, May​29, 2020
Explain why GDP falls by a larger percent than the fall in the consumption expenditure and
government spending.

GDP falls by a larger percent than the fall in consumption expenditure and government
spending because it also accounts for Investment and Net Exports thus Investment and Net
exports must have also decreased in some soft of way

The firm that printed your textbook bought the paper from XYZ Paper Mills.
Was this purchase of paper part of​GDP? If​not, how does the value of the paper get counted in​
GDP?

- No it is not part of GDP. The value of the paper gets counted in the market value of the
textbook that is sold

What is the difference between Real GDP and Nominal GDP

- Real GDP is the value of all final goods and services produced within a country during a specified
time period at the price of the reference year (2012 for Canada)
- R GDP = (Q1 of good)(P1 of good at ref year) + (Q2)(P2 2012)... etc
- Nominal GDP is the current market value of all final goods and services produced within a
country during a specified time period.
What is the expenditure approach to measuring​GDP?

GDP = I + C + G + Xnet

What is the largest contributor of expenditure

Consumer expenditure - 55% of canada's GDP

What is the income approach to measuring GDP

- Wages, Salaries, and other wage related expenses (health benefits, etc)
- Other factor incomes, Indirect taxes - subsidies + depreciation

What is the largest contributor of income approach

- Other factor incomes

The largest contributor is indeed Wages, salaries, and supplementary labor income. Not other factors
income!

What adjustments must be made to total income to make it equal​GDP?

Total income + indirect taxes - subsidies + depreciation

Why must we add depreciation to total income to make it equal GDP

- Because total income is a net number because it includes firms’ net profits, which exclude
depreciation.
Why is total expenditure a gross number
- Because it includes gross investment

How do you calculate Gross domestic income at factor costs

Amount paid to factors of production + depreciation

How do you calculate gross domestic income at market price

Amount paid to factors of production + indirect taxes less subsidies + depreciation

How do you calculate Real GDP per person

RGDP / Population

What is potential GDP

- Potential GDP is the expected future market value of a countries

Potential GDP is the value of real GDP when all the economy’s factors of production (Labour,
Land, Capital, Entrepreneurship) are fully employed. Thus, they are operating on the PPF.

What is the Business Cycle?

The Business cycle is the cyclical nature of an economy which alternates between recessions and
expansions (which are periods of low and high economic growth respectfully)

The business cycle is a periodic but irregular up-&-down movement of total production and other
measures of economic activity

An expansion is a period in which R GDP increases (for at least two successive quarters?)

What is a recession
A recession is a period in which R GDP decreases for at least two successive quarters ( Ie a
period of significant decline in total output, income, employment, and trade, usually lasting from
six months to a year)

What is the difference between real GDP and potential GDP and describe how each grows over
time.

Real GDP is the value of final goods produced within a country during a specified time period at
the price of a reference base year

- Real GDP is the value of final goods and services produced in a given year when valued at the
prices of a reference base year.

- Potential GDP is the maximum level of real GDP that can be produced while avoiding shortages
of​labour, capital,​land, and entrepreneurial ability that would bring rising inflation.