1CHAPTER 4THE MARKET FORCES OF SUPPLY AND DEMAND0Chapter 10/Chapter 5Measuring national IncomeGross Domestic Product (GDP)measures total income of everyone in the economy. GDP also measures total expenditure on the economy’s output of g&s. For the economy as a whole, income equals expenditure, because every dollar of expenditure by a buyer is a dollar of income for the seller.CHAPTER 4THE MARKET FORCES OF SUPPLY AND DEMAND1The Circular-Flow Diagramis a simple depiction of the macroeconomy.illustrates GDP as spending, revenue, factor payments, and income.First, some preliminaries:•Factors of productionare inputs like labor, land, capital, and natural resources. •Factor paymentsare payments to the factors of production. (e.g., wages, rent) CHAPTER 4THE MARKET FORCES OF SUPPLY AND DEMAND2FIGURE 1: The Circular-Flow DiagramMarkets for Factors of ProductionHouseholdsFirmsIncome (=GDP)Wages, rent, profit (=GDP)Factors of productionLabor, land, capitalSpending (=GDP)G & S boughtG & S soldRevenue (=GDP)Markets for Goods & Services
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