Gdp

GDP October-23-08 8:21 AM

Consumer expenditure

C

Investment expenditure

I

Government expenditure G Export expenditure

X

Import expenditure

M

Savings

S

Taxes

T

Income

Y

Disposable income

Yd

Y = $100 - (taxes, other deductibles) = T = $90 = YD Yd = 90 - (spend + save) Y= C + S + T Injections Leakages I

S

G

T

X

M

If injections are greater then leakages than the circular flow will increase causing the economy to expand, causing output and employment to increase.

CIRCULAR FLOW

Unit 2 Page 1

GDP = C + I + G + (X-M) GDP EXPENDITURE APPROACH

CONSUMER EXPENDITURE APPROACH 1) 2) 3) 4) 5)

DISPOSABLE INCOME CONSUMER CONFIDENCE (FUTURE EXPECTATIONS) MARGINAL TIME PREFERENCE AVAILABILITY OF CREDIT ADVERTISING a. DURABLE GOODS - GOODS THAT ARE CONSUMER OVER TIME b. NON-DURABLE GOODS - GOODS THAT ARE CONSUMED JUST ONCE

BUSINESS INVESTMENT DEPENDS ON: 1) BUSINESS CONFIDENCE (FUTURE EXPECTATIONS) 2) RATE OF INTEREST (MARGINAL EFFICIENCY OF INVESTMENT) 3) RATE OF RETURN ON INVESTMENT (PROFITS)

GOVERNMENT EXPENDITURE DEPENDS ON: 1) ELECTION PROMISE 2) ANTI-CYCLICAL BEHAVIOUR 3) TAX REVENUE NET EXPORT EXPENDITURE DEPENDS ON: 1) QUALITY OF PRODUCTS 2) PRICE OF CANADIAN VS FOREIGN GOODS 3) VALUE OF CANADIAN CURRENCY VS FOREIGN CURRENCY

CATEGORIES OF PRODUCTS FINAL PRODUCTS - PRODUCTS THAT WILL NOT BE PROCESSED FURTHER AND WILL NOT BE RESOLD INTERMEDIATE PRODUCTS - PRODUCTS THAT WILL BE PROCESSED FURTHER OR WILL BE RESOLD DOUBLE COUNTING - THE PROBLEM OF ADDING TO GDP THE SAME ITEM AT DIFFERENT STAGES IN ITS PRODUCTION VALUE ADDED - THE EXTRA WORTH OF A PRODUCT AT EACH STAGE IN ITS PRODUCTION; A CONCEPT USED TO AVOID DOUBLE COUNTING IN CALCULATING GDP EXPENDITURE EQUATION: C + I + G + (X-M) EXLUDED PURCHASES: FINANCIAL EXCHANGES - GIFTS OF MONEY BETWEEN FAMILY MEMBERS ARE NOT COUNTED IN GDP SECOND-HAND PURCHASES - EXCLUDED BECAUSE THEY HAVE ALREADY BEEN COUNTED AT THEIR FIRST SALE

PERSONAL CONSUMPTION (C) LARGEST PORTION OF GDP 55% PERSONAL CONSUMPTION - HOUSEHOLD SPENDING ON GOODS AND SERVICES DURABLE GOODS - GOODS THAT ARE CONSUMER OVER TIME NON-DURABLE GOODS - GOODS THAT ARE CONSUMED JUST ONCE

GROSS INVESTMENT (I) 15-25% OF THE GDP GROSS INVESTMENT - PURCHASES OF ASSETS THAT ARE INTENDED TO PRODUCE REVENUE INVENTORIES - STOCK OF UNSOLD GOODS AND MATERIALS CAPITAL STOCK - THE TOTAL VALUE OF PRODUCTIVE ASSETS THAT PROVIDE A FLOW OF REVENUE DEPRECIATION - THE DECREASE OF VALUE OF DURABLE REAL ASSETS OVER TIME NET INVESTMENT - GROSS INVESTMENT MINUS DEPRECIATION PERSONAL SAVINGS - (S) FUNDS SAVED BY HOUSEHOLDS GOVERNMENT PRUCHASES (G) GOVERNMENT PURCHASES - CURRENT GOVERNMENT SPENDING ON GOODS AND SERVICES

Unit 2 Page 2

GOVERNMENT PURCHASES - CURRENT GOVERNMENT SPENDING ON GOODS AND SERVICES TRANSFER PAYMENTS - GOVERNMENT PAYMENTS TO HOUSEHOLD OR OTHER LEVELS OF GOVERNMENTS NET EXPORTS EXPORTS (X)- FORIEGN PURCHASES OF CANADIAN GOODS AND SERVICES IMPORTS (M)- CANADIAN PURCHASES OF GOODS AND SERVICES FROM THE REST OF THE WORLD NET EXPORTS - EXPORTS MINUS IMPORTS

Unit 2 Page 3