How does this model allow us to measure GDP?. 4 GROUPS WHO SPEND: 1. HOUSEHOLDS 2. FIRMS 3. GOVERNMENT 4. THE REST OF THE WORLD  What we already know…

Slides:



Advertisements
Similar presentations
ECO Global Macroeconomics
Advertisements

Warm-Up/Review What is the difference between GDP/GNP? What are the two methods for measuring each? List the 3 Macroeconomic goals. What is the main purpose.
Eco 6351 Economics for Managers Chapter 10d (addendum). GDP Prof. Vera Adamchik.
Principles Of Macroeconomics
Money is the measure On the other hand… Macroeconomics is the study of how the economy operates as a whole – more than simply the sum of all markets.
Circular Flow and Gross Domestic Product
MICROECONOMICS The part of economics concerned with individual decisions made by households and businesses, as well as individual markets.
Measuring a Nation’s Income
1 Circular Flow Model : : Lets Simplify It. 2 Private Sector Circular Flow.
Introduction & The Expenditure Approach
Chapter 2 Measuring the Economy.
Maclachlan, Macroeconomics, 9/30/04 1 Principles and Policies I: Macroeconomics Chapter 7: National Income Accounting.
Copyright  2005 McGraw-Hill Australia Pty Ltd PPT Slides t/a Economics for Business 3e by Fraser, Gionea and Fraser 15-1 PART 7 THE CIRCULAR FLOW AND.
Circular Flow Chapter 2-3.
Circular Flow Model The Circular Flow Model describes and captures how the economy interacts with one another!!!
Chapter 11 Practice Quiz Tutorial Gross Domestic Product
Circular Flow of Income
C H A P T E R C H E C K L I S T When you have completed your study of this chapter, you will be able to Define GDP and explain why the value of production,
Objectives Analyze a circular flow model of a pure market economy.
AP Macroeconomics The Circular Flow & GDP. Gains from Exchange
Balance of Payments 3/2/2012 Unit 3: Exchange Rates.
Gross Domestic Product (GDP)– market value of all final goods and services produced in an economy during a given period, usually a year. In 2009, the GDP.
Measuring Domestic Output and National Income
Circular Flow Model Business Government Individuals Investors Government Consumer Product Markets Resource Markets Financial Marginal- additional, MB=
Expenditure Approach National Income Accounting. Two Methods of Calculating GDP There are two methods of calculating GDP: the expenditure approach and.
Circular Flow in Economics
Learning Objectives: Measuring the Economy LO1: Understand the circular flow of national income LO2: Explain the concept of equilibrium and why national.
Measuring Economic Activity It is also called NATIONAL INCOME ACCOUNTING. Why should we measure? - Observe a country’s performance over time. - Compare.
Unit-2 Macro Cram GDP, Unemployment, Inflation. Circular Flow of a closed Economy Spending Goods and services bought Goods and services bought Revenue.
Income and Spending: The Circular Flow Ways to Measure GDP Circular Flow.
Module 10 Mar  It is a diagram of a simplified representation of the macro-economy.  National income and product accounts or national accounts.
Modeling the Economy. Actors: 1. Consumers 2. Financial Institutions 3. Businesses 4. The Government 5. The Foreign Sector.
Income Approach National Income Accounting. Two Methods of Calculating GDP There are two methods of calculating GDP: the expenditure approach and the.
ECONOMICS SS3 WEEK 3. Methods/ Approaches To The Measurement Of National income 1. Income Approach: This is the aggregation of the rewards to the factors.
1 of 37 Chapter: 7 >> Krugman/Wells ©2009  Worth Publishers Circular Flow & GDP.
GDP : Gross Domestic Product
Households Firms Government ExportsImports Households Land, Labour, Capital, Entrepreneurship Firms Government ExportsImports Loans, Interest Savings.
Circular Flow of Income
Understanding the circular flow of income. HOUSEHOLDS RESOURCE OWNERS Business firms Money payments Income payments Wages, Rent, Interest, Profits Consumer.
The Circular Flow Model describes and shows how the economy interacts.
The National Accounts Chapter 7-1. What you will learn in this chapter: How economists use aggregate measures to track the performance of the economy.
Unit-2 Macro Review GDP, Unemployment, Inflation.
Week 8 – Economics Theory National Income Accounting.
Principles of Macroeconomics ECON203, Lecture 2: A Measure of Production and Income (GDP) Instructor: Turki Abalala.
When you have completed your study of this chapter, you will be able to C H A P T E R C H E C K L I S T Define GDP and explain why the value of production,
Measuring Economic Activity It is also called NATIONAL INCOME ACCOUNTING. Why should we measure? - Observe a country’s performance over time. - Compare.
The Circular Flow Households. The Circular Flow Households Land, Labor, Capital.
Circular Flow Chart of a Pure Market Economy ©2012, TESCCC.
Economic Activity 8.03 Explain the circular flow of economic activities and how interactions determine the prices of goods and services. Part-time workers.
WELCOME TO MACROECONOMICS! Unit 2.1: The Level of Overall Economic Activity Section 1: The Circular Flow Model.
National Income Accounting Lecture2. What is National Income? National income is defined as the total value of all goods and services produced within.
8 8 Aggregate Demand and the Powerful Consumer Men are disposed, as a rule and on the average, to increase their consumption as their income increases,
Gross Domestic Product
Section 3 Lecture October 2016 Mr. Gammie
Circular Flow Model & Business Cycle Model ***Back to Macro!***
Unit 1: Basic Economic Concepts 1.5 Circular Flow Diagram
Section 3.
Section 3 Module 10.
The Circular Flow of Income
Value of output equals GDP
Section 3.
Professor Lowenberg Office: JH 4238 Phone: anton
Mr. Mayer AP Macroeconomics The Circular Flow of Economic Activity
ECO 285 The Circular Flow Model
2.1 The Level of Overall Economic Activity
Circular Flow and GDP C H E C K L I S T
2 Methods and 4 Categories of GDP
Tracking the Macroeconomy
The Two-sector Model of the Economy (Households and Firms)
Circular Flow Chapter 3.
Presentation transcript:

How does this model allow us to measure GDP?

4 GROUPS WHO SPEND: 1. HOUSEHOLDS 2. FIRMS 3. GOVERNMENT 4. THE REST OF THE WORLD  What we already know…  Expanded: Include Gov’t, Rest of World, and Financial Markets  Households and Firms interact with financial Markets (savings) and each other (investments)  Businesses and Firms pay taxes…receive government transfers  Gov’t borrows from financial markets and buy goods and services  The rest of the world: export U.S. goods, import foreign goods, financial market borrowing and investing (monetary imports/exports)

How does this model allow us to measure GDP?

GDP CALCULATION: 1. EXPENDITURE APPROACH 2. INCOME APPROACH 3. VALUE ADDED APPROACH  Expenditure Approach*  Y = C + I + G + Nx  Y is GDP  C is household consumption of goods/services  I is investment of firms in capital goods in hopes of future benefit from initial payments  G is government spending—agency consumption or investment  Transfer payments do not count!  Nx is net exports of goods/services (exports – imports)

INCOME AND VALUE ADDED APPROACHES RULE: ALL APPROACHES WILL YIELD SIMILAR RESULTS DUE TO CIRCULAR FLOW MODELS “CLOSED” NATURE NOW: COMPLETE LAST PAGE IN GDP PACKET  Income Approach:  Sum of resource payments  Y = wages + rent + interest + profit (labor + land + capital + entrepreneurship)  Value Added Approach:  Firms production value after sales AFTER we account for cost of inputs…  Ford Mustang: 1. Ore 2. Steel 3. Car  Ore costs $4,200….Steel cost $9,000….Car costs $$21,500  Ore value $4,200…to Steel we gain $4,800…to car we gain $12,500 = Total Value Added of $21,500

WHAT IS HAPPENING IN VENEZUELA?