ModuleThe Circular Flow and Gross Domestic Product

KRUGMAN'SMACROECONOMICS for AP*

10

Margaret Ray and David Anderson

What you will learnWhat you will learn

in thisin this ModuleModule::

• 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

• National Income and Product Accounts

• Reliability

The National AccountsThe National Accounts

The Simple Circular-Flow The Simple Circular-Flow DiagramDiagram

The Expanded Circular-Flow The Expanded Circular-Flow DiagramDiagram

Gross Domestic ProductGross 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 GDPThe Components of GDP

What's IncludedWhat's Included

Domestically produced final goods Domestically produced final goods and services, including capital and services, including capital

goods, new construction of goods, new construction of structures, and changes to structures, and changes to

inventoriesinventories

Not IncludedNot Included

Intermediate goods and servicesIntermediate goods and services

InputsInputs

Used goodsUsed goods

Stocks & BondsStocks & Bonds

Foreign produced goods & servicesForeign produced goods & services