Measuring Macroeconomic Output Circular Flow and GDP.
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Transcript of Measuring Macroeconomic Output Circular Flow and GDP.
Measuring Macroeconomic Output
Circular Flow and GDP
Circular Flow Model
A simplified model of the macro economy that illustrates flows of money, goods and services
At each “node” of the model, money going out = money going in
Figure 10.1 The Circular-Flow DiagramRay and Anderson: Krugman’s Macroeconomics for AP, First EditionCopyright © 2011 by Worth Publishers
Gross Domestic Product (GDP)
• A macroeconomic measure of output• The value of all final goods and services
produced in a country in a given year• Three methods of calculating
– Value-added approach– Expenditure approach– Income approach
Figure 10.2 An Expanded Circular - Flow Diagram: How Money Flows Through the EconomyRay and Anderson: Krugman’s Macroeconomics for AP, First EditionCopyright © 2011 by Worth Publishers
Figure 10.3 Calculating GDPRay and Anderson: Krugman’s Macroeconomics for AP, First EditionCopyright © 2011 by Worth Publishers
Expenditure Approach
GDP = C + G + I + NXC = Consumer spendingG = Government spendingI = Investment spendingNX = Net exports = (Exports – Imports)
Consumer Spending
• Money spent by households on final goods and services–DOES NOT include
1. Taxes paid to governments2. Money invested or saved in financial
institutions3. Money spent outside the country
Government Spending
• Money spent by governments (at all levels) on final goods and services–DOES NOT include “transfer payments”
• Social security• Unemployment• Business subsidies
Investment Spending
• Money spent by businesses on final goods and services (productive physical capital)– Does NOT include intermediate goods or
inputs used in production– DOES include
• Increase in inventories• New homes
Net Exports
• Exports– The value of final goods and services produced in
the country and sold overseas
• Imports– The value of final goods and services produced
overseas and sold in the country
Figure 10.4 U.S. GDP in 2009: Two Methods of Calculating GDPRay and Anderson: Krugman’s Macroeconomics for AP, First EditionCopyright © 2011 by Worth Publishers