1.  Statistics Canada keeps track of the Canadian Economy  They prepare Canada’s National Income Accounts: accounts showing the levels of total income and spending in the Canadian economy  We are able to measure the strength of the Canadian Economy, and compare it to other nations’ economies 8.1 Gross Domestic Product

2.  One measure that can be developed from the national income accounts is the Gross Domestic Product, GDP: total dollar value of all final goods and services produced in the economy over a given period (typically a year)  Final Products: products that will not be processed further and will not be resold (e.g. pad of paper)  Income Approach to GDP: involves adding together all the incomes in the economy  Expenditure Approach to GDP: involves adding together all spending in the economy Measuring Gross Domestic Product

3.  In a simple economy, all spending by one person is income for someone else  Annual income = annual spending  GDP from income approach = GDP from expenditure approach Circular Flow in a Simple Economy

4.  Statistics Canada calculates the GDP using the Income Approach by summing up the following 7 categories:  Wages & Salaries (50% of GDP)  Corporate Profits  Interest Income  Proprietors’ Incomes (including rent)  Indirect Taxes (PST)  Depreciation (products & tools wear out)  Statistical Discrepancy (companies records vs Stats Can estimates) The Income Approach

5.  Final Products: products that will not be processed further and will not be resold (e.g. pad of paper)  Intermediate Products: Products that will be processed further or will be resold (e.g. clothing)  Some items are both, for instance:  Flour used at home to bake something is a final product  Flour used at a bakery to bake and sell something is an intermediate product  If both intermediate & final values were included in GDP, we would be double-counting: adding the same item at different stages to GDP – will not reflect the real economy and be too high Categories of Products

6.  Double-counting is avoided by using the concept of value added: the extra worth of a product at each stage in its production  Some products are not included in GDP:  Financial Exchanges  Gift money or stocks (same value of money is just exchanging hands)  Second-hand purchases  These products have already been counted at their first sale to a consumer. Including it would be double-counting. Categories of Products

7.  Personal Consumption (C)  Gross Investment (I)  Government Purchases (G)  Net Exports (X – M)  Expenditure Equation shows that GDP is sum of these four types of spending GDP = C + I + G + (X – M) Purchases Included in GDP

8.  Personal Consumption (C)  Non-durable goods: food (consumed just once)  Durable goods: care (consumed over time)  Gross Investment (I)  Purchase of assets intended to produce revenue (e.g. equipment & machines);  Capital Stock: total value of productive assets that provide revenue flow  Depreciation: decrease in value of durable real assets over time  Net Investment: gross investment minus depreciation  Personal Savings: funds saved by households Purchases Included in GDP

9.  Government Purchases (G)  Current government spending on goods and services (e.g. battleship, road repair)  Transfer payments: government payments to households or other levels of governments  Net Exports (X – M)  Exports (X) – part of total spending in product markets  Imports (M) – deductions from total spending Purchases Included in GDP