GDP Economics Notes - Profesor Michel mayer PDF

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Profesor Michel mayer...

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Chapter 2 - GDP (Growth Domestic Product (Test 2 Material) Growth Domestic Product GDP: Market value of all goods and services produced in a country over a period of time. GDP is always a number Is a measure of economic activity, how much activity is going on in your country

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Market Value: The market price, equilibrium price, the price the product is sold at GDP per capita: Calculating by averaging out the GDP by the number of citizens The GDP Capita tells you on average how much each person makes so you • are able to assume the standard of living. This number does not tell you the . cost of living which can sometimes be tricky There are things that the number will tell you (Unemployment, Tax (Rates, Cost of Living The number of GDP for capita is just for the people that are working (How • many people did it take to make that), the kids are not making money, the . retired are not making money Therefore a better calculation would be GDP/Worker • Even better would be GDP/Number of Hours Worked (This represents a ( really good number of productivity Populations are always increasing, if the GDP is not increasing at the same ( rate as the population, you are getting POORER (GDP for capita will drop GDP, ppp (Purchasing Power Parity): If GDP per capita for Canada is 45,000$ and the US is 53,000$. On average, everyone would earn this much money as their salary according to the GDP. China GDP per capita is 8,000$. This doesn’t indicate a standard of living because it depends where you live . because of the cost of living They try to take this amount and make it relative to the cost of living in each country. Usually, they put everything back into US dollars

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: Big Mac Index

GDP Misses :Goals Illegal Activities

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Ex: Now that weed will be sold, our GDP will be more accurate Black Market (Under the table things that are legal but you do them in an ( illegal way Non Market Acitivites: Things that are legal but are not part of a market (Fixing your roof yourself) —> GDP will not see this

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Ways to Count GDP ** These are 3 ways to calculate THE SAME number **

Product Approach Product Approach: Count all goods and services produced in the country over a year

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When you produce something, this will automatically produce the same amount of income Example: You have a farmer that produces wheat. On the other hard, you have a company 5 roses who produces flour. Another company that produces Bread. IGA that has bread. Lets assume that our farmer produces 100 million dollars of wheat. 5 roses produces 150m dollars of flour, the third company . produces 250 million dollars of bread and IGA sells for 300m dollars of bread The 150 million dollars of flour includes the 100 million dollars of wheat The 250 million dollars of Bread includes the 150m dollars of flour and 100m dollars of wheat The 300 million dollars of goods and services at IGA includes the 100m dollars of wheat, 150 million dollars of flour, and the 250 million dollars worth of bread bought at the bakery

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GDP of the country = 300 million dollars YOU NEED TO BE CAREFUL FOR DOUBLE COUNT . Double Count: Counting an amount more than once Once way to avoid this: Only count the final goods Final Goods: Goods bought by consumers for final use ( Intermediate Goods: Goods bought by firms to be changed (transformed Ex: Wheat was an intermediate good because it was turned to flour Ex: Flour was an intermediate good because it was turned to bread Ex: The bread was an intermediate good towards IGA because IGA used a .service to sell it To avoid double counting, Stats Canada will use the concept of Value Added Output Value added output= Total Output - Inputs bought from other firms Ex: The value added output in the example is an individual amount for each :person (Farmer: 100m (100-0

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(roses: 50m (150-100 5

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(Baker: 100m (250-150

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(IGA: 50m (300-250

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(GDP: 300$ (100m + 50m +100m + 50m

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Income Approach Income Approach: Count all the money earned in the country over a year ? Who is this money earned by To earn income, you need to own resources Workers: They own the Labour resource—> They earn wages They earn Profit They earn Rent They earn...