GROSS
NATIONAL PRODUCT - SECTORS
THE
OBJECT OF AN ACCURATE GNP CALCULATION IS TO HEAD OFF FUTURE PROBLEMS SUCH AS IF
A BUILD UP OF INVENTORIES IS DISCOVERED, ECONOMISTS CAN PREDICT THAT A RECESSION
IS PENDING IN THE NEAR FUTURE, IF THINGS CONTINUE ON THIS COURSE. IF WAGE AND
SALARY INCREASES START TO GROW AT TOO FAST A PACE A PREDICTION OF FUTURE
INFLATION CAN BE MADE AND APPROPRIATE GOVERNMENT ACTION CAN BE TAKEN i.e.
RAISING INTEREST RATES (HARD MONETARY POLICY). THE LACK OF CONFIDENCE IN
BUSINESSES, BECAUSE OF A DECREASE IN CONSUMER SPENDING OR A TIGHTENING OF
GOVERNMENTAL REGULATIONS, COULD POSSIBLY SIGNAL A MAJOR CRISIS SUCH AS A
DEPRESSION, WHICH HAS A SIGNIFICANT IMPACT ON GOVERNMENT POLICY. ALSO, AS
GOVERNMENTS CHANGE THE TAX SYSTEM BY ADJUSTING WHAT IS TAXED, WHO IS TAXED AND
HOW MUCH WE ARE TAXED THIS CAN HAVE A MAJOR IMPACT ON OUR NATIONAL SPENDING
HABITS.
IF
THE FUTURE CAN BE ACCURATELY PREDICTED THEN THE ECONOMY, AS A WHOLE, CAN BE MADE
TO OPERATE MORE SMOOTHLY BY PUTTING IN PLACE PROGRAMS TO HELP ONE PARTICULAR
PART OF THE ECONOMY. THIS IS COMMONLY CALLED THE "SOFT LANDING
APPROACH" TO THE ECONOMIC SITUATION. THEN THE ECONOMY WOULD BE BETTER ABLE
TO AVOID THE HUGE SHIFTS THAT OCCUR AS WE PROGRESS THROUGH THE ECONOMIC CYCLE.
THE MORE STABLE THE ECONOMY IS THE BETTER THE ECONOMIC INVESTING CLIMATE WILL BE
THUS CREATING SUCH THINGS AS A STABLE DOLLAR VALUE, RISING STOCK PRICES AND A
MOVE TOWARDS MORE EMPLOYMENT.
TWO
FACTORS THAT DETERMINE THE LEVEL OF A COUNTRY'S GNP
1.
NATIONAL PRODUCTION CAPACITY
2.
THE COUNTRY'S ACTUAL PRODUCTION LEVEL. i.e. 88% OF CAPACITY
WHAT
AFFECT'S A COUNTRY'S PRODUCTION LEVEL?
1.
SIZE & SKILL OF THE LABOR FORCE
2.
THE COUNTRY'S NATURAL RESOURCES
3.
THE AMOUNT OF CAPITAL & CAPITAL EQUIPMENT
4.
THE PRESENT EFFICIENCY OF BUSINESS ORGANIZATIONS
5.
THE OVERALL DEMAND BY ALL SECTORS OF THE ECONOMY
WHAT
DETERMINES SPENDING ON CONSUMPTION?
1.
PEOPLE'S INCOME (Y)
2.
SHIFTS OF INDIVIDUALS WANTS & NEEDS
3.
ATTRACTIVENESS OF THE GOODS
4.
PEOPLE'S FUTURE EXPECTATIONS
5.
THE LEVEL OF OVERALL EMPLOYMENT
6.
SAVINGS RATES
7.
AVAILABILITY OF CREDIT
WHAT
DETERMINES SPENDING ON INVESTMENT GOODS & SERVICES?
1.
CONSUMPTION SPENDING
2.
SIZE OF EXISTING INVENTORY
3.
INTEREST RATES OR MORTGAGE RATES
4.
BUSINESS PROFITS
5.
PRODUCTION CAPACITY
6.
FUTURE TRENDS AS PROJECTED IN 5 OR 10-YEAR CYCLES
THIS
SECTOR CAN ALSO BE CALLED REAL CAPITAL INVESTMENT OR GROSS DOMESTIC PRODUCT.
WHAT
DETERMINES GOVERNMENT SPENDING?
1.
ELECTION PROMISES
2.
THE NATIONAL DEBT
3.
CURRENT ECONOMIC PROBLEMS – i.e. HEALTH CARE
4.
LEVEL OF EMPLOYMENT
5.
LEVEL OF PRIVATE BUSINESS INVESTMENT
6.
LEVEL OF NET FOREIGN INVESTMENT IN CANADA
7.
CURRENT INTEREST RATES
8.
THE VALUE OF CANADIAN CURRENCY
9.
OUR INTERNATIONAL TRADE BALANCE
WHAT
DETERMINES THE LEVEL OF NET EXPORTS?
1.
WAGES IN THE COUNTRY-RELATIVE TO OTHER COUNTRIES
2.
WAGES & COST OF PRODUCTION IN OTHER COUNTRIES
3.
COMPARABLE LEVELS OF PRODUCTIVITY OF OTHER COUNTRIES
4.
THE EXCHANGE RATE OF OUR CURRENCY
5.
QUALITY OF GOODS
6.
A COUNTRY'S AVAILABILITY OF NATURAL RESOURCES
7.
NUMBER OF PROCESSING & MANUFACTURING INDUSTRIES IN COUNTRY
8.
FOREIGNERS NEED FOR OUR PRODUCTS & VISA-VERSA
9.
PROTECTIVE TARIFFS ON COUNTRY'S PRODUCTS