Chapter 5

Measuring a Nation’s Income

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 Learning Objectives
In this chapter, you will …
 Learn why an economy’s total income equals total
expenditure
 Learn how gross domestic product (GDP) is defined
and calculated
 GDP versus GNP
 See the breakdown of GDP into its four major
components
• Learn the distinction between real versus nominal
GDP
• Learn about GDP and economic well-being
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 Macroeconomics
 Is the study of the economy as a whole.
 Topics include:
 National income and expenditure (Gross
Domestic Product)
 Money and Banking
 Inflation
 Unemployment
 The Open Economy – Exports and Imports

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Gross Domestic Product (GDP) Is…
…the market value of all final goods &
services produced within a country
in a given period of time.

Goods are valued at their market prices, so:

 All goods measured in the same units
(e.g., dollars in Canada)
 Things that don’t have a market value are
excluded, e.g., housework you do for yourself.

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Gross Domestic Product (GDP) Is…
…the market value of all final goods &
services produced within a country
in a given period of time.

Final goods: intended for the end user

Intermediate goods: used as components
or ingredients in the production of other goods
GDP only includes final goods no intermediate
goods as they already embody the value of the
intermediate goods used in their production.
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Gross Domestic Product (GDP) Is…
…the market value of all final goods &
services produced within a country
in a given period of time.

GDP includes tangible goods

(like DVDs, mountain bikes, beer)
and intangible services
(dry cleaning, concerts, cell phone service).

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Gross Domestic Product (GDP) Is…
…the market value of all final goods &
services produced within a country
in a given period of time.

GDP includes currently produced goods,

not goods produced in the past.
Used goods are not included to avoid overstating
current production.

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Gross Domestic Product (GDP) Is…
…the market value of all final goods &
services produced within a country
in a given period of time.

GDP measures the value of production that occurs

within a country’s borders, whether done by its own
citizens or by foreigners located there.

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Gross Domestic Product (GDP) Is…
…the market value of all final goods &
services produced within a country
in a given period of time.

Usually a year or a quarter (3 months)

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Gross National Product (GNP)
…the market value of all final goods &
services produced by Canadian nationals
at home and abroad.

In contrast to GDP, GNP is the market value of Canadians,

regardless of where they produce or live.

For example, if a Canadian resident owns a factory producing

tiles in Mexico, the market value of the output is included in GNP,
but not in GDP.

In Canada, GDP>GNP, in the US, GNP>GDP.

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