Warm-Up/Review What is the difference between GDP/GNP? What are the two methods for measuring each? List the 3 Macroeconomic goals. What is the main purpose of determining a countries GDP? GNP?

Circular Flow Model The 2 nd method for determining a countrys GDP/GNP The Circular Flow Model describes and visually shows how the economy interacts with one another!!!

We begin with the 3 spending sectors! The three spending sectors are:

Businesses Govt Households

RESOURCE MARKET Where you get your 4 factors of production to make your goods and services PRODUCT MARKET Where you buy your finished goods and services for use

Businesses Govt Households Resource Market Product Market

HOUESHOLDS provide the resource market with the four factors of production. Land Labor Capital entrepreneurship In return, they receive income in the form of: Rent Wages Interest Profit

Businesses Govt Households Resource Market Product Market 4 factors of production R, W, I, & P

Businesses spend $$$ (costs) in the resource market to get the 4 factors of production to make goods and services. In return, businesses receive the land, labor, capital and entrepreneurship to make goods and services.

Businesses Govt Households Resource Market Product Market 4 factors of production R, W, I, & P Resources Costs

Businesses make goods and services with their resources and supply it to the product market. In return, businesses get revenue for supplying their goods and services.

Businesses Govt Households Resource Market Product Market 4 factors of production R, W, I, & P Resources Costs Revenue Goods and Services

Households spend money in the product market. In return, households get the goods and services they want and need.

Businesses Govt Households Resource Market Product Market 4 factors of production R, W, I, & P Resources Costs Revenue Goods and Services Consumption Spending

The government spends money in the resource market to get the 4 factors of production. The government spends money in the product market to buy goods and services.

Businesses Govt Households Resource Market Product Market 4 factors of production R, W, I, & P Resources Costs Revenue Goods and Services Consumption Spending Expenditures Resources Goods and Services

The government provides goods and services to households and businesses. Police protection Fire fighters National defense Parks Schools In return, households and businesses pays taxes to the government!

Businesses Govt Households Resource Market Product Market 4 factors of production R, W, I, & P Resources Costs Revenue Goods and Services Consumption Spending Expenditures Resources Goods and Services Goods & Services Taxes

Review Questions!!! 1.The factors of production are bought and sold in the ___________ market. 2.Goods and services are bought and sold in the ___________ market. 3.In the circular flow model, ____________ buy the factors of production from _______________. 4.In the circular flow model, ______________ buy goods and services from _________________. 5.Households and businesses pay ___________ to the government in exchange for goods and services.

Assignment: Illustrated Circular Flow Diagram On a separate sheet of paper, draw an ILLUSTRATED Circular Flow Diagram!!! Use the entire paper!!! Color your Circular Flow Diagram to help you organize whats going on!!!

2 Additions ($$) to the Circular Flow Model (Not seen in the map) INVESTMENT When businesses invest money in the economy, it pumps extra money into our economy EXPORTS When foreigners buy American goods, it pumps more money into our economy

2 Leakages to the Circular Flow Model (Not seen in the map) SAVINGS Since households dont spend all of their money, their savings is not money flowing into the economy. IMPORTS When Americans buy foreign goods, it pumps money out of the U.S. economy.