chapter 5 - Chapter 10/Chapter 5 Measuring national Income...

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1 CHAPTER 4 THE MARKET FORCES OF SUPPLY AND DEMAND 0 Chapter 10 / Chapter 5 Measuring national Income ± Gross 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 4 THE MARKET FORCES OF SUPPLY AND DEMAND 1 The Circular-Flow Diagram ± is a simple depiction of the macroeconomy. ± illustrates GDP as spending, revenue, factor payments, and income. ± First, some preliminaries: Factors of production are inputs like labor, land, capital, and natural resources. Factor payments are payments to the factors of production. ( e.g ., wages, rent) CHAPTER 4 THE MARKET FORCES OF SUPPLY AND DEMAND 2 FIGURE 1: The Circular-Flow Diagram Markets for Factors of Production Households Firms Income (=GDP) Wages, rent, profit (=GDP) Factors of production Labor, land, capital Spending (=GDP) G & S bought G & S sold Revenue (=GDP) Markets for Goods & Services
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2 CHAPTER 4 THE MARKET FORCES OF SUPPLY AND DEMAND 3 What This Diagram Omits ± The government collects taxes purchases g&s ± The financial system matches savers’ supply of funds with borrowers’ demand for loans ± The foreign sector trades g&s, financial assets, and currencies with the country’s residents CHAPTER 4 THE MARKET FORCES OF SUPPLY AND DEMAND 4 Gross Domestic Product (GDP) Is… …the market value of all final goods & services produced within a country in a given period of time. CHAPTER 4 THE MARKET FORCES OF SUPPLY AND DEMAND 5 …the market value of all final goods & services produced within a country in a given period of time.
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This note was uploaded on 02/25/2008 for the course ECON 002 taught by Professor Mahalingam during the Fall '07 term at UC Riverside.

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chapter 5 - Chapter 10/Chapter 5 Measuring national Income...

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