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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 questions@eattv.com
    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




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