National Income Accounting measures economy’s overall performance

Statistics Canada compiles National Income and Product Accounts Assess health of economy Track long run course Formulate policy

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Gross Domestic Product is:The main measure of the economy’s

performanceThe total market value of all final

goods and services produced annually within the boundaries of Canada

A Monetary Measure

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Society is willing to pay $1500 more for the combination of goods produced in year 2 than for the combination of goods produced in year 1.

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To avoid multiple counting, only final goods and services are counted

Final goods: Goods and services purchased for final use and not for resale or further processing or manufacturing

Intermediate goods are not counted Intermediate goods: Products

purchased for resale or further processing or manufacturing

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(1)Stage of production

(2)Sales value of

materials or product

(3)Value added

0

Firm A, sheep ranch $ 120 $120 (= $120 – $0)

Firm B, wool processor 180 60 (= 180 – 120)

Firm C, suit manufacturer 220 40 (= 220 – 180)

Firm D, clothing wholesaler 270 50 (= 270 – 220)

Firm E, retail clothier 350 80 (= 350 – 270)

Total sales value $1140

Value added (total income) $350

©2013 McGraw-Hill Ryerson Ltd. Chapter 5, LO1

Two types of nonproduction transactions:

1. Financial transactions Public Transfer Payments Private Transfer Payments Stock-Market Transactions

2. Second-hand sales

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The Expenditures Approach: adds up all the expenditures made for final goods and services.

The Expenditures Approach adds up personal consumption expenditures (C) gross investment (Ig) government purchases (G) net exports (Xn) = exports (X) – imports

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GDP as the sum of all the money spent in buying final goods and services.

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Stock of capital

January 1

Net investment

Stock

ofcapital

December 31

Depreciation

Gross Investment

©2013 McGraw-Hill Ryerson Ltd. Chapter 5, LO1

GDP as the sum of all the money spent in buying final goods and services.

GDP = C + Ig + G + Xn

For Canada in 2011 (in billions, from Table 5-3):GDP = $983 + $321 + $436 - $19 = $1721

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The Income Approach: adds up expenditures that are allocated as income to those producing the output

The Income Approach adds up Wages, salaries, and supplementary labour income Profits of corporations and government enterprises

before taxes Interest and investment income Net income of farm and unincorporated businesses Indirect taxes less subsidies on products Depreciation: Capital consumption allowances

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Net domestic income at factor cost All the income earned by Canadian-

supplied factors of production as wages, interest, rent, and profit.

Personal income (PI) The earned and unearned income

available to resource suppliers and others before the payment of personal income taxes.

Disposable income (DI) Personal income less personal taxes.

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