The Circular Flow and Gross Domestic Product and

The Circular Flow and Gross Domestic Product and Interpreting Real Gross Domestic Product Lesson 23 Sections 10, 11

National Accounts • National Income and Product Accounts (National Accounts) – Spending of Consumers – Sales of Producers – Business Investment Spending – Government Purchases – Other money flows

Gross Domestic Product • GDP or Gross Domestic Product is the value of all Final Goods and Services – Production of Goods and Services Government Purchases 20. 6% – Aggregate Spending Net Exports Investment – Total of all Incomes • GDP = C + I + G + X – IM – Consumption (C) – Investment (I) – Government Purchases (G) – And net exports (X – IM) -2. 7 % 11. 4% Consumption 70. 8%

Nominal and Real GDP • Nominal GDP – The output of a state • Real GDP – Output of a state adjusted for inflation • Calculating Real GDP – Choose a base year (Nominal GDP), and then adjust for inflation for all of the other years (Real GDP) • Chain-Linking – Average between early and late based growth rates – Early based growth rates are going from 2000 -2001 – Late based growth rates are going from 2001 -2000

What Real GDP Doesn’t Measure • • • GDP Per Capita Happiness Volunteerism Natural Resources Under the table payments Black Market