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    ECON 1BB3 - Introduction To Macroeconomics

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    JeevikaGoyal
    The document provides an overview of macroeconomics concepts including GDP, its calculation using the expenditure method, components of GDP, and the circular flow model. It also discusses how inflation is calculated using the Consumer Price Index and provides an example of calculating GDP and inflation for an economy with two goods.

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    ECON 1BB3 - Introduction To Macroeconomics

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    JeevikaGoyal
    198 views16 pages
    The document provides an overview of macroeconomics concepts including GDP, its calculation using the expenditure method, components of GDP, and the circular flow model. It also discusses how inflation is calculated using the Consumer Price Index and provides an example of calculating GDP and inflation for an economy with two goods.

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    Lecture 05a

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    The document provides an overview of macroeconomics concepts including GDP, its calculation using the expenditure method, components of GDP, and the circular flow model. It also discusses how inflation is calculated using the Consumer Price Index and provides an example of calculating GDP and inflation for an economy with two goods.

    Copyright:

    Attribution Non-Commercial (BY-NC)
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    198 views16 pages

    ECON 1BB3 - Introduction To Macroeconomics

    Uploaded by

    JeevikaGoyal
    The document provides an overview of macroeconomics concepts including GDP, its calculation using the expenditure method, components of GDP, and the circular flow model. It also discusses how inflation is calculated using the Consumer Price Index and provides an example of calculating GDP and inflation for an economy with two goods.

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    ECON 1BB3 Introduction to Macroeconomics

    Does doing the dishes have economic value? YES according to Statistics Canada:
    YES if you were in a restaurant NO if you were at home

    Gross Domestic Product (GDP): market value of all final goods & services produced in a country in a given period of time it is a measure of how much stuff we make

    Gross Domestic Product (GDP)


    market value all final F] MRGPYHMRK XLI KSSH SRP] [LIR XLI JMREP YWIV LEW FSYKLX MX ]SY EZSMH HSYFPI GSYRXMRK goods & services PIKEP HSGXSV WIVZMGIW IXG [LIVI EVI XLI] TVSHYGIH RSX [LIVI GSRWYQIH produced in a country in a given period of time

    (VYKW ERH TVSWXMXYXMSR EVI RSX TEVX SJ +(4 EW [IPP EW SXLIV YRHIV XLI GSYRXIV MPPIKEP XVERWEGXMSRW 7IVZMGIW XLEX [I HS EQSRKWX SYV S[R LSYWILSPHW EVI RSX GSYRXIH

    three ways to calculate GDP same 1. output (basic prices) concept, SV QIXLSH different 2. expenditure (market prices) prices SRP] X[S MR XLI FSSO WS TE] EXXIRXMSR 3. income (market prices) XS XLI SYXTYX QIXLSH the difference between GDP at market prices and GDP at basic prices is: basic prices include taxes / subsidies on factors market prices include sales tax
    )\TIRHMXYVI QIXLSH MW EHHMRK XLMRKW YT [LIR TISTPI FY] XLIQ

    Canadas 2006 GDP


    Equation: Y = C + I + G + NX
    Consumption (C) durable goods, non-durable, services LSYWI MW RSX E HYVEFPI KSSH Investment (I) purchase of new capital goods; machinery & equipment; also new housing MRZIRXSV] TEVXMEPP] TVSHYGIH SV WXMPP MR WXSVI [EVILSYWI Government spending (G) all levels of government, spending on goods and services (not transfer payments) Net exports (NX) purchases of domestically-produced goods by foreigners (exports) MINUS domestic purchases of foreign goods (imports)

    -RXIRXMSR EPWS HIXIVQMRIW [LEX X]TI SJ WTIRHMRK -J - FY] E XVYGO JSV Q]WIPJ ' -J - FY] MX JSV Q] PERHWGETMRK GSQTER] - -J - FY] MX JSV Q] TEVOW ERH VIGVIEXMSR NSF + -J - FY] MX JVSQ 97% 2<

    Canadas 2006 GDP


    Equation: Y = C + I + G + NX
    GDP, expenditure-based GDP (Y) CONSUMPTION (C) INVESTMENT (I) GOVERNMENT PURCHASES (G) NET EXPORTS (NX)
    'SRWYQIV GSRJMHIRGI QSVI MQTSVXERX MR XLI 97 EVI GSRWYQIVW [SVVMIH EFSYX JYXYVI#

    $1,439B
    &

    100% 55.7% 19.3% 22.2% 2.6%

    $801B
    & &

    $278B $319B
    &

    $38B

    Canadas 2006 GDP


    8LI PEVKIWX WIVZMGIW TVSHYGMRK MRHYWXV] MW *MRERGI MRWYVERGI ERH VIEP IWXEXI

    GDP, basic prices GDP GOODS-PRODUCING INDUSTRIES SERVICES-PRODUCING INDUSTRIES


    GDP per capita

    $1,100B $334B $766B

    100% 30.4% 69.6

    Circular flow diagram & GDP


    market for goods & services
    I\TIRHMXYVI KSSHW WIVZMGIW

    firm

    household

    MRGSQI

    JEGXSV WIVZMGIW

    market for factor services

    ;LEX MW GETMXEP#

    Gross National Product (GNP): total value of all final goods and services produced by a countrys factors in a given period of time PEFSYV GETMXEP IXG Net National Product (NNP): GNP Depreciation (Capital Consumption Allowance) National Income (NI): NNP Net Indirect Taxes Personal Income (PI): NI - Retained Earnings Disposable Personal income (DPI): PI - Personal Taxes
    8LMRKW TVSHYGIH MR E JSVIMKR GSQTER] MWR X MRGPYHIH MR 'EREHMER +(4 ;MRH JEVQ MR 1ERMXSFE FY]W PEVKI [MRH XYVFMRI JVSQ 7[IHMWL S[RIH JEGXSV] MR 3RXEVMS XLEX YWIW PSGEP [SVOIVW 'EREHMER MRZIWXQIRX ERH +(4 MRGVIEWI F] WEQI EQSYRX FYX 'EREHE +24 MRGVIEWIW F] WQEPPIV EQSYRX

    ,S[ HS - ORS[ XLEX - Q FIXXIV SJJ XLER Q] TEVIRXW#

    ECON 1BB3 Introduction to Macroeconomics

    2SQMREP MRGVIEWIW MJ SYXTYX ERH TVMGIW MRGVIEWIW 6IEP SRP] MRGVIEWIW MJ SYXTYX MRGVIEWIW

    GDP if prices or if output real GDP vs. nominal GDP (base year prices vs. current year prices) GDP deflator: a measure of the price level

    -R E KVSYT SJ E TPERI GEV XE\M ERH FYPPHS^IV XLI GEV MW XLI QSWX HMJJIVIRX MR XIVQW SJ +(4 GEXIKSV] FIGEYWI MX GSQIW YRHIV GSRWYQTXMSR MRWXIEH SJ MRZIWXQIRX

    Example: Canadas GDP is based on only two goods: skates and hockey pucks. Calculate the GDP with the data below.

    Skates

    Hockey pucks

    Year 2004 2005 2006

    Price $50 $60 $70

    Quantity 100 200 300

    Price $3 $4 $5

    Quantity 500 1000 1200

    -RJPEXMSR GLERKI

    TVMGI PIZIP JVSQ

    ]IEV XS RI\X

    *base year = 2004

    Year

    Nominal GDP

    Real GDP

    GDP deflator

    Inflation rate

    2004

    -R FEWI ]IEV VIEP +(4 ! RSQMREP +(4 ! ! ! ! !

    2005

    2006

    How do we calculate inflation using CPI?


    Consumer Price Index (CPI): measures overall cost of goods for a typical urban household it is a measure of the price level steps to calculating inflation using CPI 1. Fix the basket I\EGXP] LS[ QER] SJ IEGL KSSH ]SY RIIH
    IK VSPPW SJ XSMPIX TETIV

    2. 3.

    Example: basket = 10 skates and 20 hockey pucks

    Year 2004 2005 2006

    Price of skates $50 $60 $70

    Price of hockey pucks $3 $4 $5

    *base year = 2005 Year 2004 2005 2006


    ! ! ! ! ! !

    Cost in current yr.


    CPI

    Inflation rate

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