Module 10: The Circular Flow and Gross Domestic Product

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Module 10: The Circular Flow and Gross Domestic Product AP Economics Mr. Bernstein Module 10: The Circular Flow and Gross Domestic Product January 22, 2015

AP Economics Mr. Bernstein The National Accounts Produced by Department of Commerce Income and Product Accounts Measures flows and expenditures of a country Equivalent of Income Statement for Corporation

AP Economics Mr. Bernstein Circular Flow Diagram

AP Economics Mr. Bernstein Circular Flow Diagram Households and Firms Product Market is the market for goods and services Factor Markets are the markets for resources or inputs firms need to produce goods and services Each has its own supply and demand

AP Economics Mr. Bernstein Expanded Circular Flow Diagram

AP Economics Mr. Bernstein Expanded Circular Flow Diagram More complex Households do not directly many sell factors of production to firms (other than labor) – financial markets intermediate US government, other countries also included Notice inflows = outflows for all markets or elements

AP Economics Mr. Bernstein Gross Domestic Product: Calc Method 1 The total market value of all final goods and services produced within a country in one year Market value – the value of production Final goods – no intermediate goods What if product is assembled in China, but the components came from Vietnam and the corporate headquarters is in California?

AP Economics Mr. Bernstein Gross Domestic Product: Calc Method 2 Spending on Domestically Produced Final Goods and Services Divided into four categories of buyers Personal Consumption Expenditures (C) Domestic Investment (I) Government Purchases (G) Net Exports (Xn)…aka (X – IM) GDP = C + Ig + G + Xn

AP Economics Mr. Bernstein Gross Domestic Product: Calc Method 3 Total Factor Income (National Income) Divided into five categories of income Compensation of all Employees, home or abroad Rents Interest Earned Proprietors’ Income Corporate Profit (undistributed) NI = Wages + Rents + Interest + Profits

AP Economics Mr. Bernstein

AP Economics Mr. Bernstein