chap 5

• What happens to the​ company's value added when it​ "contracts out" such​ work?

  The​ company's value added will decrease, since the cleaning and machinery maintenance now become intermediate services purchased from other firms.
• What happens to value added in the economy as a​ whole?

  Value added in the economy as a whole will not​ change, since these services are now included in value added of specialist firms.
• A Canadian farmer pays ​$300 for seeds to grow organic​ beets, which she sells to a produce distributor for ​$1000. The distributor sells the beets to a restaurant for ​$1400​, who then sells ​$3000 worth of beet salads.

  The value added is ​$2700
• A Canadian retailer imports ​$700,000 worth of toys from China and sells them for ​$1.2 million.

  The value added is ​$500000
• A mining firm uses ​$3 million worth of purchased inputs to extract​ bauxite, which it sells to an aluminum company for ​$6 million. The aluminum company sells ​$7 million worth of aluminum to a door manufacturer who sells ​$9 million worth of finished doors to a​ big-box retailer who sells them to the public for ​$12 million.

  
  

  The value added is ​$9 million.
• A miner mines iron ore​, which he sells to a blacksmith for ​$3,000.

  The blacksmith produces steel pipes, which he sells to a plumber for ​$3,600. The plumber produces all sorts of plumbing services​, which are sold to the public for ​$5,400.

  Based on this​ information, the value of total output is equal to ​$5,400
• A miner minesiron ore​, which he sells to a blacksmith for ​$1,500.

  The blacksmith produces steel pipes​, which he sells to a plumber for ​$1,800.

  The plumber produces all sorts of plumbing services​, which are sold to the public for ​$2,700.

  If we made the mistake of double counting at every level of​ production, as opposed to using the valued added​ approach, we would calculate the total value of the output to be ​$6000

  If we use the valued added​ approach, the true value would be ​$2700.

  This means we would have overestimated the true value of the output by 122.22​%.
• In​ Shoetown, a rancher takes ​$60 worth of inputs and produces animal​ skins, which he sells to the tanner for ​$360. The tanner then sells leather to the shoemaker for ​$670​, and the shoemaker then sells ​$1,210 worth of shoes.

  The value added from these transactions is $1150
• Jodie's Bakery generates a yearly revenue of ​$5,600. Throughout the year Jodie spends ​$1,400 on​ flour, ​$900 on​ fruit, ​$500 on sugar​ & spices, ​$1,500 on​ butter, and employs an assistant whom she pays ​$900.

  Calculate the value of the annual output produced by​ Jodie's Bakery using the value added method. it's $1300
• ​If, when measuring​ Canada's national​ output, we add the market values of all​ firms' outputs in​ Canada, then we are committing the error of double counting. Such an amount would greatly overestimate the​ economy's actual output.
• To avoid double counting in measuring national​ income, statisticians use the concept of value added. Each​ firm's value added is the value of its output minus the costs of intermediate goods that it purchases from other firms.
• There are two methods to compute national​ income:

  (1) add up total expenditure domestic​ output

  ​(2) add up total income generated by producing that output. The first measure is called GDP from the expenditure ​side; the second measure is called the GDP from the income side.

  The value calculated by the first method is equal to the value calculated by the second​ method, other than errors of measurement.
• If we measure GDP from the expenditure​ side, we are adding four broad categories of​ expenditure: consumption​, investment​, government purchases​, and net exports.
• If we measure GDP from the income​ side, we are adding three main components of factor​ incomes:

  interest​, business profits​, and wages and salaries.
• To these items we must add​ non-factor payments of

  depreciation and indirect taxes less subsidies.
• Expenditures on furniture by consumers are included in the category of Actual Consumption
• Expenditures on furniture by firms are included in the category of Actual Investment
• Expenditures on new computers by​ Canadian-owned insurance companies located in Canada are

  included in the category of Actual Investment
• Expenditures by​ Canadian-owned insurance companies located in the United States on new computers are included in the GDP of the USA in the category of Actual Investment
• Expenditures on new computers by​ U.S.-owned insurance companies located in Canada are included in the category of Actual Investment
• Reductions in business inventories are included in the category of Actual Investment
• Purchases of​ second-hand cars and trucks are excluded
• The hiring of kindergarten teachers by the Manitoba government is an actual government purchases
• The purchase of​ Canadian-produced software by a firm in Korea is included in the category of actual Net Exports
• GDP = C + I + G + NX

  Is this equation a causal​ relationship, suggesting that an increase in any one of the​ right-hand-side terms causes an increase in​ GDP?

  This equation is an example of​bi-directional causation.
• Which of the following transactions would not be included in the calculation of GDP on the expenditure​ side?

  A.The purchase of a new boatboat by a household.

  B.The purchase of a plumber's by a household.

  C.The purchase of ground beef by McDonald's

  D.The purchase of an airplane by Air Canada.

  Correct answer is C.The purchase of ground beef by McDonald's
• Question content area topPart 1Suppose a government collects ​$13.0 billion in various tax​ revenues, and pays ​$2.3 billion in debt​ interest, ​$

  9.5 billion in social security​ benefits, and ​$1.2 billion in government employee wages. What is the direct contribution to GDP coming from this​ government's fiscal​ actions?

  
  

  Answer is $1.2 billion
• If nominal GDP increases by 35% over a​ 10-year period, then it is unclear how much of this increase is due to increases in output and how much is due to increases in prices. To overcome this​ problem, we look at GDP valued at constant prices and we refer to this measure as real national income.
• GDP divided by total population gives us a measure of average material living standards
• GDP divided by the number of employed persons in Canada gives us a measure of labour productivity
• A major ice storm in Quebec damages homes and thus increases the demand for building materials.

  As a​ result, the real GDP Increases
• The Manitoba blizzard of 1966 damages many factories.nothing As a​ result, the real GDP decreases.
• In a near perfect growing season, Saskatchewan's wheat crop increases to be 20% above normal levels. As a​ result, the real GDP increases.
• A​ 50% increaseincrease in the world price of oil in 2014–2015 causes​ Alberta-based oil producers to increase their oil production​ (measured in​ barrels) by 3 percent. As a​ result, the real GDP increases.
• A global pandemic in 2020 leads to the unemployment of millions of Canadians whose employers are forced to suspend operations. As a​ result, the real GDP decreases
• The widespread distribution of a new vaccine against​ COVID-19 in 2021 allows millions of Canadians to return to their jobs. As a​ result, the real GDP Increases
• The building of a larger arena in Toronto increases the demand for Maple Leafs tickets by Torontonians. As a​ result, the real GDP is unchanged.
• The building of a larger arena in Toronto increases the demand for Maple Leafs tickets by residents of​ Buffalo, New York. As a​ result, the real GDP increases.
• Compared to inflation as measured by the rate of change in the GDP​ deflator, inflation as measured by the rate of change in the Consumer Price Index is likely different.
• The one instance when the two measurements of inflation would be exactly the same occurs if the country produces only consumer goods and engages in no trade with other countries.