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AP Economics

AP Economics. Mr. Bernstein Module 10: The Circular Flow and Gross Domestic Product January 2019. AP Economics Mr. Bernstein. The National Accounts Produced by Department of Commerce Income and Product Accounts Measures flows and expenditures of a country

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AP Economics

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  1. AP Economics Mr. Bernstein Module 10: The Circular Flow and Gross Domestic Product January 2019

  2. AP EconomicsMr. 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

  3. AP EconomicsMr. Bernstein Circular Flow Diagram

  4. AP EconomicsMr. 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

  5. AP EconomicsMr. Bernstein Expanded Circular Flow Diagram

  6. AP EconomicsMr. 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

  7. AP EconomicsMr. Bernstein Gross Domestic Product: Definition • 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 • Within a country • What if a product is assembled in China, but the components came from Vietnam and the corporate headquarters is in California? • In one year – or within a given time period

  8. AP EconomicsMr. Bernstein Gross Domestic Product: Calc Method 1 – Expenditures Approach • 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

  9. AP EconomicsMr. Bernstein Gross Domestic Product: Calc Method 2 – National Income Approach • Roughly, all expenditures must equal all income • So, Total Factor Income (National Income) also = GDP • 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

  10. AP EconomicsMr. Bernstein

  11. AP EconomicsMr. Bernstein

  12. AP EconomicsMr. Bernstein Gross Domestic Product: What’s Not Included • Intermediate Goods (i.e. tires on a new car) • Goods produced in another country • Goods Produced at Home (i.e. value of DYI projects) • Illegal or underground activities (i.e. drug dealing and/or working for cash “off the books”) • Financial transactions (i.e. buying or selling stocks) • Used goods (i.e. buying a used textbook)

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