Download Module 10 ~ circular flow and GDP.notebook

Module 10 ~ circular flow and GDP.notebook
February 03, 2016
Warm Up ~
A. What are the 3 major economic indicators?
1.
2.
3.
B. What facts did you find regarding the economy last night?
Module 10 ~ circular flow and GDP.notebook
February 03, 2016
Module 10 ~ circular flow and GDP.notebook
February 03, 2016
National Accounts: keeping track of the spending of consumers, sales' of producers, business investment spending, government purchases, and exports/imports.
National accounts are conducted by the Bureau of Economic Analysis
Module 10 ~ circular flow and GDP.notebook
February 03, 2016
Module 10 ~ circular flow and GDP.notebook
Households: February 03, 2016
Circular Flow Simulation
Start with resource cards (15 total)
Sell resource cards to businesses
EconoLand
Purchase Econos Firms:
Start with cash ($1000)
Buy Resources. Go to Econo Factory to make Econos
Sell to households.
*Every time a business sells an Econo, please come to me and tell me the purchasing price
Module 10 ~ circular flow and GDP.notebook
February 03, 2016
Econoland wrap­up
1) Which household has the most product cards?
2) Which firm has the most money?
3) What variables are "fixed" in this simulation?
4) Does the simulation emulate the real world? How so? or How not?
5) What is GDP in econoland?
6) If I increased the amount of money given to businesses to start the simulation, what do you think would have occurred?
7) If I increased the amount of resources given to households to start the simulation, what do you think would have occurred?
Module 10 ~ circular flow and GDP.notebook
simple Circular flow Model
February 03, 2016
Module 10 ~ circular flow and GDP.notebook
More complex and real circular flow model. pg 104
February 03, 2016
Module 10 ~ circular flow and GDP.notebook
February 03, 2016
Household:
Outflow of money
• Purchases of goods and services in the product market
• Savings to financial markets
• Taxes to government
Inflow of money
• Income from resource market (wages, rent, profit from capital investments)
• Interest from bonds (loans to firms). Profit from investments (stock)
• government transfers ~ social security, unemployment checks, financial aid disposable income = Income + govt. transfers ­ taxes
Module 10 ~ circular flow and GDP.notebook
February 03, 2016
Firms~
Inflow: • revenue from goods/services
Outflow: • purchases of resources (factor market)
• Investment Spending:
1.
Purchases of goods/services (new capital, new machines)
2.
Changes in Inventories
Inventory: finished goods sitting in the factory waiting to be sold
3.
Construction of any structure (including houses) Module 10 ~ circular flow and GDP.notebook
February 03, 2016
Government ~
Inflow:
• Taxes from citizens
• Borrowing from financial market
Outflow: • government transfers to citizens (unemployment, social security)
• Government purchases of goods and services
Module 10 ~ circular flow and GDP.notebook
February 03, 2016
Rest of the world: In terms of the U.S.
• Imports: goods/services coming in to America
Outflow of money to foreign countries, inflow of goods/services
• Exports: goods/services exiting America
Inflow of money to U.S., outflow of goods/services to foreigners
Module 10 ~ circular flow and GDP.notebook
February 03, 2016
Financial markets banks/individuals/governments buy and sell stocks and bonds.
Stock ~ purchasing a percentage of the capital owned by a company
Bond ~ loan to a company or government (IOUs)
Inflow: • Savings from Households in the U.S. and rest of world
Outflow: • government borrowing (government issuing/selling bonds)
• Borrowing from firms aka firm's issuing of stock
Module 10 ~ circular flow and GDP.notebook
February 03, 2016
Final goods and services: goods and services sold to the final, or end, user. (not used goods)
Intermediate goods and services: goods and serices that are inputs into the production of final goods and services. The purchaser is not the final user.
Example: A car sold on the lot is a final good. The steel purchased by the car manufacturer to build the car is an intermediate good. Module 10 ~ circular flow and GDP.notebook
February 03, 2016
GDP: Gross Domestic Product The total value1 of all final2 goods and services3 produced4 in the domestic5 economy during a year6 evaluated at market prices7
1. Dollars ($)
2. final: no double counting!!!
3. services are included
4. A measure of production
5. only inside the physical boundaries of the U.S.
6. A time period ~ GDP is a continuous flow
7. use market values Module 10 ~ circular flow and GDP.notebook
February 03, 2016
Three ways to calculate GDP
1) Value Added approach: sum of the value added by each firm to the final product.
2) Income approach: sum of all income earned by households from firms. The income households make. 3) Expenditure approach (aka aggregate spending): sum of all sales of goods and services in the economy. What we spend.
Module 10 ~ circular flow and GDP.notebook
pg 107
February 03, 2016
Module 10 ~ circular flow and GDP.notebook
February 03, 2016
The expenditure approach: aggregate spending on goods/services
GDP = C + I + G + X
Module 10 ~ circular flow and GDP.notebook
February 03, 2016
GDP = C + I + G + X
71% of GDP
C: Consumer Spending on goods/services
Durables: Cars, goods that last for long periods of time. If the economy is going into a recession, consumer's wait to purchase durables until market changes.
Non­Durables: Milk, goods that last for short periods of time. Module 10 ~ circular flow and GDP.notebook
February 03, 2016
GDP = C + I + G + X
11% of GDP
I: Investment ~ purchase of goods for the purpose of future production and profits. A firm can invest. Consumers save.
Investments:
1. Fixed Investment ~ a. residential (houses, apt. buildings)
b. non­residential (factories, machines, software)
2. Inventory Investment ~ unsold finished goods
Still counted. Changes the ability of the firm to make future sales. Module 10 ~ circular flow and GDP.notebook
February 03, 2016
GDP = C + I + G + X
21% of GDP
G: Government Spending of goods and services
• Federal + state + local government spending
• Excludes transfer payments and interest on public debt.
Module 10 ~ circular flow and GDP.notebook
February 03, 2016
GDP = C + I + G + X
­3% of GDP
X: Exports ­ Imports
• negative number means a trade deficit.
• We are currently importing more than we exporting. (­3%)
Module 10 ~ circular flow and GDP.notebook
GDP = C + I + G + X
100%
=
71% + 11% + 21% + ­3%
February 03, 2016
Module 10 ~ circular flow and GDP.notebook
February 03, 2016
Module 10 ~ circular flow and GDP.notebook
1) Expenditure approach: GDP = C + I + G + X
February 03, 2016
Module 10 ~ circular flow and GDP.notebook
1) Income Approach: Money sent to the factor market.
February 03, 2016
Module 10 ~ circular flow and GDP.notebook
February 03, 2016
Go to page 150 and 151 #1 and #2
1. Calculate GDP using both Expenditures approach and Income approach. Show your work.
2. Calculate GDP using both Expenditures approach and Income approach. Show your work.
Module 10 ~ circular flow and GDP.notebook
February 03, 2016
Module 10 ~ circular flow and GDP.notebook
February 03, 2016
Module 10 ~ circular flow and GDP.notebook
February 03, 2016
Module 10 ~ circular flow and GDP.notebook
February 03, 2016
Activity 2­1 and 2­2 due next class