Module 10
The Circular
Flow and Gross
Domestic Product
KRUGMAN'S
MACROECONOMICS for AP*
Margaret Ray and David Anderson
What you will learn
in this Module:
• How economists use aggregate measures
to track the performance of the economy
• The circular flow diagram of the economy
• What gross domestic product, or GDP, is
and the three ways of calculating it
The National Accounts
• National Income and
Product Accounts
• Reliability
The Simple Circular-Flow
Diagram
The Expanded Circular-Flow
Diagram
Gross Domestic Product
• Final goods and services
• Intermediate goods and services
• GDP
• Value of all goods and services produced
(value added approach)
• Aggregate Spending (C + I + G + XN)
• Total Factor Income
The Components of GDP
What's Included
Not Included
Intermediate goods and services
Inputs
Domestically produced final goods and
services, including capital goods, new
construction of structures, and changes to
inventories
Used goods
Stocks & Bonds
Foreign produced goods & services
Figure 10.3 Calculating GDP
Ray and Anderson: Krugman’s Macroeconomics for AP, First Edition
Copyright © 2011 by Worth Publishers
Figure 10.1 The Circular-Flow Diagram
Ray and Anderson: Krugman’s Macroeconomics for AP, First Edition
Copyright © 2011 by Worth Publishers
Figure 10.2 An Expanded Circular - Flow Diagram: How Money Flows Through the Economy
Ray and Anderson: Krugman’s Macroeconomics for AP, First Edition
Copyright © 2011 by Worth Publishers