ap economics mr. bernstein module 10: the circular flow and gross domestic product january 22, 2015
TRANSCRIPT
AP Economics
Mr. Bernstein
Module 10: The Circular Flow and Gross Domestic Product
January 22, 2015
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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
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AP EconomicsMr. Bernstein
Circular Flow Diagram
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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
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AP EconomicsMr. Bernstein
Expanded Circular Flow Diagram
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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
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AP EconomicsMr. 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?
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AP EconomicsMr. 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
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AP EconomicsMr. 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
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AP EconomicsMr. Bernstein
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AP EconomicsMr. Bernstein