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ENGR 3360U Winter 2014

Unit 2.2.1

Macroeconomics: Measuring Economic Activity

Dr. J. Michael Bennett, P. Eng., PMP,

UOIT,

Version 2014-I-01

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Unit 2.2 Macroeconomics

2014!"!01 #r. $.M. %ennett& '.Eng.& 'M' ENGR 3360U Eng Eco2.2!2

()ange Recor*

2014!"!01 "nitia+ (reation

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2.2.2 Measuring Economic Activity

2.2.2.1 G#' Gross #omestic 'ro*uct

2.2.2.2 Measuring G#'

2.2.2.3 Nomina+ vs. Rea+ G#'

2.2.2.4 Unem,+oyment Rate

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Measuring G#' -a

Gross *omestic ,ro*uct& G#'

/ )e maret va+ue o t)e ina+ goo*s an* services ,ro*uce*

in a country *uring a given ,erio*

Using maret va+ues o *ierent goo*s an* services

A++os economists to aggregate t)e uantities o many

*ierent goo*s an* services

're*icting t)e tota+ va+ue o marete* out,ut is useu+ 5ecause:

e+,s governments to ,re*ict ta7 revenue an* e7,en*itures

)e num5er o ,ai* 8o5s in t)e economy *e,en*s on G#'

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Measuring G#' -5

ina+ goo*s or services -e.g. san*ic)

Goo*s or services consume* 5y t)e u+timate user

t)e en* ,ro*ucts o t)e ,ro*uction ,rocess

ota+ ina+ sa+es / G#'"nterme*iate goo*s or services

e.g. )eat in +our ,ro*uction;

+our in 5rea* ,ro*uction;

5rea* in san*ic) ,ro*uction/ Goo*s or services use* u, in t)e ,ro*uction o ina+ goo*s an* services&

Not se,arate+y counte* as ,art o G#'& in or*er to avoi* *ou5+e!counting

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W)at is t)e re+ations)i, 5eteen G#' an*

Economic We++!%eing<Economic out,ut = Marete* out,ut

G#' omits va+ue )ouse)o+* +a5or& va+ue o +eisure& +engt) o

+ie& etc..

G#' inc+u*es >regretta5+e e7,en*itures?

(osts o ,o++ution& crime& etc.G#' is a useu+ conce,t 5ecause:

Maret (onsum,tion is an im,ortant ,art o e++!5eing

G#' tren*s *etermine ,ai* em,+oyment

G#' tren*s *etermine ta7 revenues @ government e7,en*itures%U G#' ,er ca,ita WEBB!%E"NG

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2014!"!01 #r. $.M. %ennett& '.Eng.& 'M' ENGR 3360U Eng Eco2.2!C

G#' a useu+ measure& 5ecause:

"ncome ena5+es consum,tion

Many ,eo,+e ant ,ai* 8o5s

G#' grot) rate *etermines t)e rate o grot)o ,ai* em,+oyment

Governments nee* ta7 revenue to ,rovi*e

servicesG#' grot) rate )eavi+y in+uence t)e ta7

revenues an* e7,en*itures o governments

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2014!"!01 #r. $.M. %ennett& '.Eng.& 'M' ENGR 3360U Eng Eco2.2!D

2.2.2.2 Measuring G#'

)e #omestic in >Gross #omestic 'ro*uct?

means >,ro*uce* it)in a given country?

G#' measures economic activity it)in agiven country ! a++ ,ro*uction taing ,+ace it)in (ana*ian

5or*ers& even i ,ro*uce* in a oreign!one* ,+ant

#uring a given ,erio*; Norma++y a year

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2014!"!01 #r. $.M. %ennett& '.Eng.& 'M' ENGR 3360U Eng Eco2.2!

Euation or G#'

Y = C + I + G + NX

Y / gross *omestic ,ro*uct& or out,ut

C / consum,tion e7,en*iture

I / investment

G / government ,urc)ases NX / net e7,orts

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E7,en*iture (om,onents o G#'

E7,en*iture (om,onents o (ana*ian G#'&

2003 -5i++ions o *o++ars

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G#' as "ncome -5Ftatistics (ana*a actua++y 5reas *on G#' into 9 incomecategories:

Wages& sa+aries an* su,,+ementary +a5our income

Net arm an* sma++ 5usiness income -inc+u*es most

renta+ income

(or,orate ,roits 5eore ta7es

"nterest an* misce++aneous investment income

(a,ita+ consum,tion a++oances

Bast 4 categories corres,on* roug)+y to ca,ita+ income

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"ncome (om,onents o G#'

"ncome (om,onents o (ana*ian G#'&

2003 -5i++ions o *o++ars

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'utting "t A++ oget)er

G#' is t)e same amount )et)er e

measure it 5y e7,en*itures or incomes

)is is not a coinci*ence)ere is a circu+ar +o re+ations)i, 5eteen

e7,en*itures an* incomes

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2.2.2.3 Nomina+ G#' vs. Rea+ G#'

Nomina+ uses current ,rices

Rea+ uses t)e %ase ear ,rice

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G#' ! Mont)+y Economic "n*icators)tt,:HHstrategis.ic.gc.caHe,icHinternetHineas!aes.nsHenH)Ira01DDe.)tm+

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G#' 10!2009


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2014!"!01 #r. $.M. %ennett& '.Eng.& 'M' ENGR 3360U Eng Eco2.2!1C

G#' (om,arisons

We can com,are G#' across

#ierent +ocations

'rovince!5y!,rovince G#'

#ierent times

1C G#' to 2001 G#'

(om,aring G#' over time may 5e mis+ea*ing

%ecause o in+ation

".e.& G#' is ca+cu+ate* using maret va+ues& )ic) are

in+uence* 5y in+ation

o tae out t)e eects o in+ation& economists use a 5ase year

A ,articu+ar year e.g. 1C

i 2 2 i

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2014!"!01 #r. $.M. %ennett& '.Eng.& 'M' ENGR 3360U Eng Eco2.2!1D

2.2.2.4 Unem,+oyment

Fensitive in*icator o con*itions in t)e

+a5our maret

#irect in*icator o unuse* +a5our resourcesBo unem,+oyment is corre+ate* it)

$o5 security

$o5 avai+a5i+ity"m,roving ages an* oring con*itions

U i 2 2 M i

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(osts o Unem,+oyment

Unem,+oyment im,oses costs on a nation

Economic Boer incomes -5ot) earnings an* ,roits *ec+ine

"ncrease* government transer ,ayments

'syc)o+ogica+ Boss o se+!esteem& *e,ression

Focia+: Unem,+oyment /= FREFF "ncrease in crime& *ivorce& *omestic vio+ence& a+co)o+ism& *rug

a5use& etc..

Unem,+oye* ,eo,+e are MU( un)a,,ier t)an ot)ers

Em,+oye* are a+so +ess )a,,y )en unem,+oyment rises

U i 2 2 M i

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Fu,,+ementary Measures o Unem,+oyment

Jicia+ unem,+oyment rate e7c+u*es to grou,s o orers:

#iscourage* orers

'eo,+e )o say t)ey ou+* +ie to )ave a 8o5 5ut )ave

not ma*e an eort to in* one in t)e ,ast 4 ees 5ecause t)ey 5e+ieve t)at t)ere are no 8o5s to 5e )a*

"nvo+untary ,art!time orers

'eo,+e )o say t)ey ou+* +ie to or u++!time 5ut are

on+y a5+e to in* ,art!time or

Ftatistics (ana*aKs su,,+ementary unem,+oyment rates inc+u*e

t)ese grou,s

U it 2 2 M i

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Fu,,+ementary Unem,+oyment Rates

Ofcial Canadian rate plusinvoluntary part-time workers

Ofcial Canadian rateplus discouraged workers

Ofcial Canadian ratemade comparable to U.S. rate

Ofcial U.S. rate

Ofcial Canadian rate

U it 2 2 M i

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Recent Unem,+oyment Rates

2014 " 01 #r $ M %ennett ' Eng 'M' ENGR 3360U Eng Eco2 2 22

Documents

3360 Unit 02.2.2 2014-I-01