The Circular Flow and GDP - AP Macroeconomics

Savings, Taxes, Imports. Money flows that exit the circular flow system.

To adjust nominal GDP for inflation. Removes inflation to show real economic growth.

Government Spending. Public sector purchases of goods and services.

$GDP\ Deflator = \frac{Nominal\ GDP}{Real\ GDP} \times 100$ . Ratio showing price level changes over time.

$GDP = Wages + Rent + Interest + Profit$. Sums all factor payments earned in production.

Black market activity is not included in GDP. Underground activities escape official measurement systems.

Counting intermediate goods more than once in GDP. Including intermediate goods inflates GDP measurement incorrectly.

GNP includes income from abroad; GDP does not. GNP measures national income regardless of location.

Gross National Product. Measures total national production regardless of location.

Economic activity not reported to the government and not included in GDP. Hidden economic activity that avoids taxation and regulation.

To measure economic activity and performance. Systematic recording of economic transactions and output.

A payment for which no goods or services are exchanged, not included in GDP. Redistributes income without creating new production.

It is used to compare real GDP across different years. Reference point for measuring real changes over time.

The decrease in value of capital assets over time. Capital consumption that reduces productive capacity.

Total GDP measures total output; GDP per capita measures output per person. Per capita adjusts for population differences between countries.

Collects taxes and provides public goods and services. Government participates through spending and taxation flows.

Gross Domestic Product. Standard acronym for measuring total economic output.

The total market value of all final goods and services produced within a country in a year. Measures total economic output using market prices for final goods only.

Consumption, Investment, Government Spending, Net Exports. The four spending categories that sum to total GDP.

$GDP = C + I + G + (X - M)$. Standard expenditure method where net exports equals exports minus imports.

Consumption. Household spending on goods and services.

Investment. Business spending on capital goods and inventory.

Government Spending. Public sector purchases of goods and services.

X = Exports, M = Imports. Trade components where net exports equals $X - M$.

Savings, Taxes, Imports. Money flows that exit the circular flow system.

Investment, Government Spending, Exports. Money flows that enter the circular flow system.

Nominal GDP is not adjusted for inflation; real GDP is adjusted for inflation. Real GDP removes price level changes to show actual output changes.

A model that shows how money flows through the economy between households and firms. Shows economic interdependence through spending and income flows.

Households provide factors of production and consume goods and services. Supply labor and demand goods in the circular flow.