1. Measuring Economic Activity It is also called NATIONAL INCOME ACCOUNTING. Why should we measure? - Observe a country’s performance over time. - Compare performance with other countries. Economy’s output is also called AGGREGATE OUTPUT. How is it measured? 1. INCOME APPROACH 2.OUTPUT APPROACH 3. EXPENDITURE APPROACH

2. HOMEWORK Wednesday 05 September 2012 Due on: Friday 07 September@9.00am Workpoint 13.1 1.Complete questions 1 and 2 on page 160. 2.Think about question 3. Lets Check! 1.Calculate the GDP of Canada in 2009 using the Expenditure method. A.We know that GDP = C + I + G + (X-M). C = 1,527,258 I = + 269,394 G = + 333,942 X-M = (438,553- 464,722 = - 26169) GDP = 2,104,425 million CAD$ B. Consumption = 72.6% of GDP Government = 15.9% Investment = 12.8% Net Exports = -1.2%

3. A closer look at the EXPENDITURE APPROACH Consumption (C) Investment (I) Government Spending (G) Net Exports (X-M) GDP Gross Domestic Product GDP = C+I+G+(X-M) The EXPENDITURE approach measures the total amount of spending (or expenditure) to buy goods and services in a country.

4. GDP GDP or Gross Domestic Product is a measure of output produced in a country during a given period of time. DEFINITION – GDP is the market value of all the final goods and services produced in a country over a period of time (usually a year). It includes: spending by households called Consumption (C ), spending by firms called Investment (I), spending by government called Govt. Spending (G) spending by foreigners on exports – spending on imports called Net Exports (X-M)

5. A closer look at the VALUE OF OUTPUT APPROACH Farmer gets rubber from the rubber tree and sells it for $30. He has added value worth $30. Tire firm owner buys the rubber and converts it into tires which he sells for $200 to the car manufacturer. How much value has he added ? A car producer buys the tire and uses it in his car production. He sells the car for $500 to the consumer. If you sum up all the value that has been added, you get the total value added. TOTAL VALUE ADDED = 30+170+300 = $500 This is also same as the price of the car. $170. How much value has he added ? $300

6. A closer look at the VALUE OF OUTPUT APPROACH What producers produce in 1 year. The VALUE OF OUTPUT approach measures the value of each good and service produced in the country over a period of time (a year) and then adds them up to get the TOTAL VALUE OF OUTPUT PRODUCED. VALUE OF OUTPUT = Value of Output (Agriculture) + Value of Output (Banking) + Value of Output (Transport) + etc.

7. A closer look at the INCOME APPROACH The INCOME approach adds up all the income earned by the factors of production in the country over a period of time (a year). NATIONAL INCOME = TOTAL WAGES + TOTAL RENT + TOTAL INTEREST+ TOTAL PROFITS

8. HOMEWORK Friday 07 September 2012 Due on: Monday 10 September@9.00am Answer these questions in your classwork books. Please use FULL SENTENCES. 1.Name the three flows shown in the Circular Flow Model. 2.Explain how firms are both buyers and sellers in the Circular Flow Model. 3.What are the 4 factors of production and what are their respective payments. 4.What is the difference between a closed economy and an open economy. 5.Explain what happens when the size of leakages are larger than the size of injections. 6.Read pages 161 and 162 of your textbook.