Chapter 9

• Gross domestic product (GDP)


  The market value of all final goods and services produced within a country in a given year

  
• GDP


  • Key measure of economic activity
  • Tallies up the value of all the goods and services produced in a given year

  
• GDP of other countries

  • Canada: $2.14 trillion (USD)
  • France: $2.78 trillion (USD)
  • UK: $3.07 trillion (USD)
  • US: $25.46 trillion (USD)
• GDP per capita in comparator countries

  • Canada: $55,000 (USD)
  • France: $41,000 (USD)
  • UK: $46,000 (USD)
  • US: $77,000 (USD)

  
• Concern about the trajectory of GDP per capita in Canada as it has recently been declining
• GDP


  • Includes the market value of all final goods and services
  • Excludes intermediate goods
  • Excludes resale of existing goods
  • Includes goods produced within the country, even if by foreign-owned businesses
  • Measures the flow of output over a year

  
• GDP


  • Can be measured from 3 perspectives: total spending, total output, total income

  
• Total spending perspective on GDP

  Measures GDP by adding up every dollar of spending
• Total output perspective on GDP

  Measures GDP by adding up every dollar's worth of output produced

  
• Total income perspective on GDP

  Measures GDP by adding up every dollar of income earned

  
• Consumption


  Household spending on final goods and services
• Investment


  Spending on new capital assets that increase the economy's productive capacity
• Government purchases


  Government spending on goods and services, excluding transfer payments
• Net exports


  Spending on exports minus spending on imports
• Total output and total spending are equal and both equal GDP
• Value added


  The amount by which the value of an item is increased at each stage of production
• GDP is total income, which is the sum of total wages and total profits

  
• Labor's share of income had been declining until the commodity boom
• Value added


  Measures your contribution toward producing that item
• GDP is total spending

  
• GDP is total output

  
• GDP is total income
• GDP measures total wages + total profits

  
• Key take-aways: GDP measures

  • GDP is total spending
  • GDP is total output
  • GDP is total income

  
• Former U.S. Senator Robert F. Kennedy: '"[GDP] does not allow for the health of our children, the quality of their education, or the joy of their play. It does not include the beauty of our poetry or the strength of our marriages, the intelligence of our public debate or the integrity of our public officials. It measures neither our courage, nor our wisdom, nor our devotion to our country. It measures everything, in short, except that which makes life worthwhile."'
• Limitations of GDP

  • Prices are not values
  • Nonmarket activities — including household production — are excluded
  • The shadow economy is missing
  • Environmental degradation isn't counted
  • Leisure doesn't count
  • GDP ignores distribution
• Nominal GDP


  GDP measured in today's prices

  
• Real GDP


  GDP measured in constant prices, excludes the effects of price changes

  
• The world population is nearly 8 billion
• The Canadian population is about 40 million
• There are around 16 million households in Canada
• Rule of 70


  Divide 70 by the annual growth rate to approximately get the number of years until the original amount doubles