Circular Flow Model
Household is a person or group that share their income
Firm/Business is an organization that produces good and services for sale
Gross Domestic Product
GDP - total value of all final goods and services produced within a country border in a given year
- includes all production and income earn within a the U.S by the U.Sand foreign producers
- exclude proton outside the U.S even by Americans
GNP Gross National Product
- the total value of all final good and services produced by Americans within a year
- Includes production or income earn by americans anywhere in the world
- exclude production by non Americans even in the U.S
C+Ig+G+ GDP
C= Consumption (67% of the economy)
Ig= Gross private Domestic Investment (18% of the economy)
- new factory equipment
- factory equipment maintenance
- construction of housing
- unsold inventory of produces built in a year
G= Government Spending (17% of the economy (school bus,weapons)
Xn= net exports (exports - imports) 2% of the economy
Included C, Ig, G, Xn
- Excluded Intermediate goods use to make finish product
- avoid double or multiple counting
- used or second hand goods avoid double counting
- Stocks and bonds no production
- gifts and transfer payments (scholarship)
- illegal activities
- unreported business activités
- non market activity (volunteering, baby-sitting)
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