1.
How do economists use aggregate measure to
track the performance of the economy?
2.
What is the circular flow diagram of the
economy?
Virtual Economics
Videos: Economic
Growth and
GDP
3.
What is gross domestic product (GDP) and what
are the 3 ways to calculate it?
1.
What is macroeconomics?
2.
What is the difference between Micro and Macro?
3.
Why should the economy be studied?
4.
How do you measure something? Describe.
5.
How do economists gauge what is happening in the economy?
National Accounts: keeps track of
different flows of money between
the different sectors of the
economy (consumer spending,
business sales, business
investment etc.)
 National Income Accounting:
method of measuring the flows of
income and expenditures in the
economy over a period of time
 National income accounts serve
the same purpose for the economy
as does the income statement of a
business

Product Market: a market where goods and
services and b__________and ________
2. Households = d__________ side of the market
3. Businesses = s__________ side of the market
4. Interaction of demand and supply: determines
the p_________of each product
5. Flow of consumer expenditures: constitute
s______ receipts for businesses
1.
Product Market: a market where goods and
services and bought and sold
2. Households = demand side of the market
3. Businesses = supply side of the market
4. Interaction of demand and supply: determines
the price of each product
5. Flow of consumer expenditures: constitute
sales receipts for businesses
1.
1.
2.
3.
4.
5.
Resource (Factor) Market: where land, labor, capital are
b_________and s_______
Households = supply r___________ directly (workers ) or
indirectly (through ownership of corporations)
Businesses = d___________r___________ in order to
produce goods and services
Interaction of supply and demand: determine the p______
of the r_____________, which in turn is i__________ for
the owner of the resource
Flow of payments from businesses for resources: constitute
b____________c_______ and resources owner’s incomes
1.
2.
3.
4.
5.
Resource (Factor) Market: where land, labor, capital are
bought and sold
Households = supply resources directly (workers ) or
indirectly (through ownership of corporations)
Businesses = demand resources in order to produce goods
and services
Interaction of supply and demand: determine the price of
the resource, which in turn is income for the owner of the
resource
Flow of payments from businesses for resources: constitute
business costs and resources owner’s incomes
Product market
monetary flow
physical flow
Households
expenditures
Government
expenditures
Firms
physical flow
monetary flow
Factor market
13
• Final goods and services
• Intermediate goods and services
• GDP: Ways to Calculate
1. Value of Production of all final goods and
services produced
2. Aggregate Spending Formula: C + I + G + (X-M)
3. Total Factor Income
1. Total value
of production
GDP: total market value of
2. Not
all final goods and
intermediate
goods
services produced within a
country for 1 year
1
2
3
4
3. produced,
not SOLD
4. Made within
the country,
even if the producer is
foreign owned
5
5. One (1) calendar
Year from Jan. 1
to Dec. 31
Computing the Market VALUE of production
 Add the production versus the VALUE of the production


Example:

OR
In which month did the Coffee Shop have a better month?
Computing the Market VALUE of production
 Add the production versus the VALUE of the production


Example:

OR
In which month did the Coffee Shop have a better month?
Only Final Goods & Services are used in calculating GDP to
avoid double or multiple counting (no intermediate goods)
 Final Goods = ready for consumption ~ ex. Bottle of ketchup
 Intermediate Goods: needs further processing before being
counted as a final good



Example:
Transaction
Cost
1 lb of tomatoes from grower to processor
$.50
Bottle of Ketchup from processor to Kroger
$1.50
Kroger sells ketchup to consumer
$3.00
Total $ spent
$5.00
$5.00 overstates the value of the $3.00 ketchup. The
$3.00 includes all the other transactions so this is the
only transaction that is counted toward GDP
GDP is tabulated as the production is done
with the boundaries of a given nation
 Produced in USA = belongs to USA’s GDP

Where it is consumed is irrelevant
 Where the company is headquartered is
irrelevant

Ex: General Motors, and American Company,
has a factory in South Africa producing trucks.
The value of the trucks are counted in whose
GDP?
GDP counts the dollar value of what
has been produced in the economy
over the year, not what was actually
sold.
 Example: A Honda Civic produced in
Kentucky in 2009, but not sold until
2010 is counted in which year’s
production and GDP?
 USA’s production for 2009 GDP

GDP is divided into the buyers in the market:
1. household consumers,
2. businesses,
3. government,
4. buyers from outside the country
 FORMULA: Personal Consumption + Domestic
Investment + Government Purchases + Net
Exports
 Summary: C + I + G + (X-M)

1.
Personal Consumption: includes durable goods (ex._______________)
and non-durable goods (ex._____________) & services
(ex.___________)
2.
Domestic Investment: final purchases in m____________,
e_______________, & tools; all construction (including
r_________________); & changes in business i____________y
3.
Government Purchases: includes spending by all levels of gov’t
(f_______, s_____, l_____), & all direct purchases of resources (ex.
l_______)
4.
Net Exports (X-M): all spending on goods produced in USA and sold in
another country (e__________) & goods purchased in the USA but
made elsewhere (i__________);
The difference (X-M) can be a p_____________ or n__________
number
5.
1.
Personal Consumption: includes durable (new dishwasher) and
non-durable goods (lettuce) & services (pedicure)
2.
Domestic Investment: final purchases in machinery, equipment, &
tools; all construction (including residential); & changes in
business inventory
3.
Government Purchases: includes spending by all levels of gov’t
(fed, state, local). & all direct purchases of resources (labor)
4.
Net Exports (X-M): all spending on goods produced in USA and
sold in another country (exports) & goods purchased in the USA
but made elsewhere (imports);
The difference (X-M) can be positive or negative number
5.
The sum of national income: all income supplied
by American supplied resources (here or abroad)
 NI = Wages + Rents + Interest + Profits
W = Compensation for employees
R = Rents
I = Interest
P = Proprietor's Income & Corporate profits

COUNTED:
 Domestically produced
final goods and services


NOT COUNTED:

Second hand sales, resells on Ebay
Pure financial transactions (public
transfer payments, social security,
welfare benefits)
Private transfer payments
(student allowances, alimony)
Transfer of existing assets: sale of
stocks & bonds



1.
2.
3.
4.
5.
6.
7.
8.
9.
2 x 4’s that are used in building a new home
A brand new Dodge Ram Truck built in Cullman,
Alabama & purchased in Canada
Fan belts used in the building of a new Honda
Accord
A Honda Accord built in Ohio
Ford F150 built in Canada & imported to the
USA
Samsung TVs assembled in South Korea
Delta sells an airplane to Korean Air
Ms. Ware purchases Facebook stock.
Ms. Ware buys some French perfume at Macy’s.
Complete Module 10 questions p. 110-111
 Read Module 11
 Strive for a 5 Module 10 vocab & fill in the
blank
