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EATEconomic Activity Television Catherine McGoveran Stephanie Milligan Carolyn Pollard Stephanie Woods Rebecca Young EAT Economic Activity Television Today’s Program Gross Domestic Product (GDP) Components of GDP Per capita GDP Limitations of GDP Other economic measures Breaking News! Reporter Stephanie Milligan National Income Accounts Definition: accounts showing levels of total income and spending in the Canadian economy National Income Accounts Similar to how a business tracks revenues and expenditures Performance of the Canadian economy can be analyzed and compared to other nation’s economies by using national income accounts GDP Definition: the total dollar value at current prices of all final goods and services produced in Canada in a given period Dollar value is calculated at current prices, typically once a year How To Calculate GDP 1. Income Approach: a method of calculating GDP by adding together all incomes in the economy 2. Expenditure Approach: a method of calculating GDP by adding together all spending in the economy GDP Identity GDP expressed as total income = GDP expressed as total spending Both of these expressions are identical Either method can be used The Daily Weather Report With Rebecca Young Weather Break Satellite Image of Canada Long-term Forecast Mon. Tues. Wed. Thurs. Fri. Sat. HIGH 4°C 3°C 5°C 7°C 5°C 3°C LOW - -2°C -3°C -2°C 1°C 3°C Cloudy Cloudy Cloudy Variable with CONDITIO Rain or period period cloudi Light rain sunny N snow s s ness break s P.O.P. 60% 10% 20% 20% 90% 20% W 15 SW 20 SW 15 S 15 NW 15 W 10 WIND km/h km/h km/h km/h km/h km/h Special Report on the “Approach” With Carolyn Pollard The Income Approach The income approach is made up of 4 components for calculating GDP 1. Wages 2. Rent 3. Profit 4. Interest The Income Approach Stats Canada added three other classifications used for calculating GDP 5. Indirect taxes 6. Depreciation 7. Statistical Discrepancy Account Balance GDP found through income approach with GDP found through expenditure approach The Income Approach Therefore GDP is the sum of the seven groups The Expenditure Approach Categories of Products 1. Final Products: products that will not be processed further and will not be resold 2. Intermediate Products: products that will be processed further or will be resold The Expenditure Approach Be Careful!! Double Counting: adding the same item to GDP at different stages in its production ↓ Causes estimates of GDP to be too high The Expenditure Approach Value Added: the extra worth of a product at each stage in its production ↓ Used to avoid double counting Stats Canada subtracts the value of all intermediate goods/services from the value of the products at the next intermediate and final stages The Expenditure Approach Categories of Purchases Excluded Purchases: categories excluded because they are not related to current production 1. Financial Exchanges 2. Second-Hand Purchases The Expenditure Approach The Categories of Purchases (cont’d) Included Purchases: categories that are used in GDP calculations 1. Personal Consumption (C) 2. Gross Investment (I) 3. Government Purchases (G) 4. Net Exports (X-M) The Expenditure Approach FORMULA! Expenditure Equation GDP = C + I + G + (X – M) Questions? Personal Consumption Definition: household spending on goods and services, which is the largest portion of the GDP Nondurable Goods: goods that are consumed just once (Food) Durable Goods: goods that are consumed repeatedly over time (CDs) Gross Investment Definition: purchases of assets that are intended to produce revenue It can vary from about 15%-25% from year to year Most important spending is on equipment and machines Inventories Definition: stocks of unsold goods and materials businesses use inventories of input to avoid stopping production due to unexpected demand, and are viewed as income-producing assets ↑ inventories in a year = positive investment spending ↓ inventories in a year = negative investment spending Construction of all buildings is part of gross investment Capital Stock Definition: the total value of productive assets, such as machinery and equipment that provide a flow of revenue Net Investment Definition: gross investment minus depreciation, representing the yearly change in the economy’s stock capital Government Purchases Definition: Current government spending on goods and services Makes up about 20% of GDP Government spending uses taxes from households and businesses for finances Examples Road Repairs Buying battleships for armed forces Government Purchases Government spending NOT included in: Government transfer payments to households Subsidies to businesses Expenditures by government-owned companies Net Exports Exports: Canadian purchases of goods and services (by foreigners) Imports: Canadian purchases of foreign goods and services Net Exports Net Exports: exports minus imports Small portion of GDP Exports/Imports separately count for 25% Foreign involvement creates a net increase Formula! (X–M) Expert Opinion GDP and Living Standards Per Capita GDP: GDP per person, calculated as GDP divided by population GDP ____________________ Adjustments to Per Capita GDP Inflation Adjustments When making comparisons about economic well being – per capita GDP must be adjusted This compensates for price changes over the years Adjustments to Per Capita GDP Inflation Adjustments Real GDP: GDP expressed in constant dollars from a given year Per Capita Real GDP: GDP per person, expressed in constant dollars from a given year Adjustments to Per Capita GDP Inflation Adjustments Formula! Per capita real GDP = Real GDP Population Adjustments to Per Capita GDP Exchange-Rate Adjustments Different currencies must be adjusted when comparing the GDP of different countries Adjustments to Per Capita GDP Limitations of GDP GDP has qualitative and quantitative limitations 1. Excluded Activities 2. Product Quality 3. Composition of Output 4. Income Distribution 5. Leisure 6. The Environment Interview With Hazel Henderson Hazel Henderson Thinking Globally Viewers Emails Dear Economic Activity Television, I love your show. It is so informative and entertaining. I watch it every day. I have some things that have been troubling me though. Could you explain some other economic measures please. Thank you so much!! Submit your questions at www.eattv.com or Email us at firstname.lastname@example.org Other Economic Measures National income accounts are used by Stats Canada to calculate measures that indicate economic activity 1. Gross National Product (GNP) 2. Net Domestic Product (NDI) 3. Personal Income 4. Disposable and Discretionary Income Gross National Product Definition: the total income acquired by Canadians both within Canada and elsewhere GDP – concentrates on incomes in Canada VS. GNP – concentrates on incomes of Canadians Gross National Product Two adjustments made to GDP to calculate GNP 1. Income earned from Canadian investments by foreigners is deducted from GDP 2. Income earned from foreign investments by Canadians is added to GDP Formula! GNP = GDP – Net investment income to foreigners Net Domestic Income Definition: the total income earned by Canada’s households Formula! NDI = GDP – amounts that are not earnings from current production Personal Income Definition: the income actually received by households • Adjustments must be made to NDI to calculate personal income 1. Transfer payments 2. Other payments to persons 3. Earnings not paid out to persons 4. Net investment income to foreigners Disposable and Discretionary Income Disposable Income: household income minus personal taxes and other personal transfers to government Discretionary Income: disposable income minus purchases of necessities EAT Economic Activity Television Thank You For Tuning In! Homework!
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