Gross Domestic Product & Gross National Product

Gross Domestic Product (GDP) - The total money value of all final goods and services produced within a countries borders within a given year.

- Economist collect statistics on production, income, investment, and savings (national income accounting)

Gross National Product (GNP) - A measure of what its citizens produced and whether they produced these items within its borders.

What is included in GDP?
C + IG + G + Xn

1. Consumption - takes up 67% of economy; final goods and services
2. Gross Private Domestic Investment - Factory equipment maintenance; new factory equipment; construction of housing; unsold inventory of products built in a year.
3. Government spending - Military buying weapons; school districts buying buses or other equipment.
4. Net export - (Export - Imports)

Whats not included in GDP?

1. Used or second hand goods.
2. Intermediate goods - goods and services that are purchased for resale or for further processing or manufacturing.
3. Non market activities - Volunteer work, babysit, illegal drug sales, bartering and trading.
4. Financial transactions - stocks, bonds, real-estate.
5. Gifts or transfer payments - Public payments: recipients contribute nothing to the current production. ex. social security, welfare payments. Private payments: produces no output and is simply transferring funds from one individual to another. ex. scholarships, christmas gifts.

Expenditure approach - adding up the market value of all domestic expenditures made on final goods and services in a single year.
          C + IG + G + Xn = GDP

Income approach - adding up all the income earned by households and firms in a single year.
          W + R + I + P + Statistical adjustments = GDP
Wages Rents Interest Profit
Wages - compensation of employees and salaries.
Rent - From tenants to landlord; lease payments that corporations pay for the use of space.
Interests - Money paid by private businesses to the suppliers of loans used to purchase capital.
Profit - Corporate income taxes, dividends, undistributed corporate profits.

Circular Flow Model

The Circular flow model - represents the transactions within an economy

• Goods and Services flow clockwise

Two Markets

      1. Resource or Factor Market- The place where households sell resources and the businesses buy resources

      2. Product Market- The place where goods and services are produced by businesses and are bought and sold to the households

3 Economic Factors: 

     1. Household- Person or group of people that share income

     2. Government

     3. Firm- An organization that produces goods and services for sale

Business Cycles

    Expansionary:

• 
  
•       Real output in the economy is increasing and the unemployment rate is declining
•       Construction= Growth Stage 

         Peak:

•       Where real output is at its highest point

         Contraction (Recession):

•        Real output in economy is decreasing and the unemployment rate is rising.

         Trough:

•        Lowest point reached on GDP