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Economic Activity Television
Catherine McGoveran
Stephanie Milligan
Carolyn Pollard
Stephanie Woods
Rebecca Young
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Economic Activity Television
Today’s Program
Gross
Domestic Product (GDP)
Components of GDP
Per capita GDP
Limitations of GDP
Other economic measures
Breaking News!
Reporter
Stephanie Milligan
National Income Accounts
Definition: accounts showing levels of total income
and spending in the Canadian economy
National Income Accounts
Similar to how a business tracks revenues
and expenditures
 Performance of the Canadian economy
can be analyzed and compared to other
nation’s economies by using national
income accounts

GDP
Definition: the total dollar value at current
prices of all final goods and services
produced in Canada in a given period

Dollar value is calculated at current prices,
typically once a year
How To Calculate GDP
1.
Income Approach: a method of calculating
GDP by adding together all incomes in the
economy
2.
Expenditure Approach: a method of
calculating GDP by adding together all
spending in the economy
GDP Identity
GDP expressed as total income
=
GDP expressed as total spending

Both of these expressions are identical

Either method can be used
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Special Report on the
“Approach”
With Carolyn
Pollard
The Income Approach

The income approach is made up of
4 components for calculating GDP
1.
2.
3.
4.
Wages
Rent
Profit
Interest
The Income Approach

Stats Canada added three other
classifications used for calculating GDP
5. Indirect taxes
6. Depreciation
7. Statistical Discrepancy Account

Balance GDP found through income
approach with GDP found through
expenditure approach
The Income Approach
Therefore
GDP is the sum of the seven groups
The Expenditure Approach
1.
2.
Categories of Products
Final Products: products that will not be
processed further and will not be resold
Intermediate Products: products that will
be processed further or will be resold
The Expenditure Approach
Be Careful!!
Double Counting: adding the same item to
GDP at different stages in its production
↓
Causes estimates of GDP to be too
high
The Expenditure Approach
Value Added: the extra worth of a product at
each stage in its production
↓
Used to avoid double counting

Stats Canada subtracts the value of all
intermediate goods/services from the value of
the products at the next intermediate and final
stages
The Expenditure Approach
Categories of Purchases
Excluded Purchases: categories excluded
because they are not related to current
production
1.
2.
Financial Exchanges
Second-Hand Purchases
The Expenditure Approach
The Categories of Purchases (cont’d)
Included Purchases: categories that are
used in GDP calculations
1.
2.
3.
4.
Personal Consumption (C)
Gross Investment (I)
Government Purchases (G)
Net Exports (X-M)
The Expenditure Approach
FORMULA!
Expenditure Equation
GDP = C + I + G + (X – M)
Questions?
Personal Consumption
Definition: household spending on goods and
services, which is the largest portion of the GDP
Nondurable Goods: goods that are
consumed just once (Food)
Durable Goods: goods that are consumed
repeatedly over time (CDs)
Gross Investment
Definition: purchases of assets that are intended to
produce revenue


It can vary from about 15%-25% from year to
year
Most important spending is on equipment and
machines
Inventories
Definition: stocks of unsold goods and
materials




businesses use inventories of input to avoid stopping
production due to unexpected demand, and are viewed
as income-producing assets
↑ inventories in a year = positive investment spending
↓ inventories in a year = negative investment spending
Construction of all buildings is part of gross investment
Capital Stock
Definition: the total value of productive assets,
such as machinery and equipment that provide
a flow of revenue
Net Investment
Definition: gross investment minus depreciation,
representing the yearly change in the
economy’s stock capital
Government Purchases
Definition: Current government spending on
goods and services


Makes up about 20% of GDP
Government spending uses taxes from
households and businesses for finances
Examples
 Road
Repairs
 Buying battleships for
armed forces
Government Purchases
Government spending NOT included in:
Government transfer payments to households
 Subsidies to businesses
 Expenditures by government-owned companies

Net Exports
Exports: Canadian
purchases of goods
and services
(by foreigners)
Imports: Canadian
purchases of foreign
goods and services
Net Exports
Net Exports: exports minus imports
 Small
portion of GDP
 Exports/Imports separately count for 25%
 Foreign involvement creates a net increase
Formula!
(X–M)
Expert Opinion
GDP and Living Standards
Per Capita GDP: GDP per person, calculated as
GDP divided by population
GDP
____________________
Adjustments to Per Capita GDP
Inflation Adjustments
 When making comparisons about
economic well being – per capita GDP
must be adjusted

This compensates for price changes over the
years
Adjustments to Per Capita GDP
Inflation Adjustments
Real GDP: GDP expressed in constant
dollars from a given year
Per Capita Real GDP: GDP per person,
expressed in constant dollars from a given
year
Adjustments to Per Capita GDP
Inflation Adjustments
Formula!
Per capita real GDP = Real GDP
Population
Adjustments to Per Capita GDP
Exchange-Rate Adjustments
 Different currencies must be adjusted
when comparing the GDP of different
countries
Adjustments to Per Capita GDP
Limitations of GDP
 GDP has qualitative and quantitative
limitations
1.
2.
3.
4.
5.
6.
Excluded Activities
Product Quality
Composition of Output
Income Distribution
Leisure
The Environment
Interview
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Hazel Henderson
Thinking
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Other Economic Measures

National income accounts are used by
Stats Canada to calculate measures that
indicate economic activity
1.
2.
3.
4.
Gross National Product (GNP)
Net Domestic Product (NDI)
Personal Income
Disposable and Discretionary Income
Gross National Product
Definition: the total income acquired by
Canadians both within Canada and elsewhere

GDP – concentrates on incomes in Canada
VS.

GNP – concentrates on incomes of Canadians
Gross National Product
Two adjustments made to GDP to calculate GNP
1.
2.
Income earned from Canadian investments by
foreigners is deducted from GDP
Income earned from foreign investments by
Canadians is added to GDP
Formula!
GNP = GDP – Net investment income to foreigners
Net Domestic Income
Definition: the total income earned by
Canada’s households
Formula!
NDI = GDP – amounts that are not earnings from
current production
Personal Income
Definition: the income actually received by
households
•
Adjustments must be made to NDI to
calculate personal income
1.
2.
3.
4.
Transfer payments
Other payments to persons
Earnings not paid out to persons
Net investment income to foreigners
Disposable and Discretionary
Income
Disposable Income: household income
minus personal taxes and other personal
transfers to government
Discretionary Income: disposable income
minus purchases of necessities
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