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) DISPOSABLE INCOME
2) CONSUMER CONFIDENCE (FUTURE EXPECTATIONS)
3) MARGINAL TIME PREFERENCE
4) AVAILABILITY OF CREDIT
5) 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

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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

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