Aim: How can analysis of circular flow and expenditure approach provide insight into interdependency between economic variable? Do Now: Formulate a question about anything that was unclear in the homework assignment you had due today

How is the Circular Flow used to reinforce the concept of INTERDEPENDENCY?

GDP Market Value Final G & S New Produced Within the Nation’s Boarders During a specific interval of time Value Added Approach Income Approach Expenditure Approach } Ways to measure GDP

What is Calculated in GDP and what isn’t Included: Included: – Domestically produced final goods and services – Final goods include capital goods, new construction of structures, and changes to inventories Not Included: Not Included: – Intermediate goods and services – Inputs – Used Goods – Financial assets like stocks and bonds – Foreign-produced goods and services

Two methods of Calculating GDP: Expenditure Approach Expenditure Approach – adding up all of the expenditures on goods and services produced in the economy – Four Main components are consumption expenditures by households (C), gross private investment spending principally by firms (I), government purchases of goods and services (G), and net exports (exports minus imports EX - IM). GDP = C + I + G + (EX - IM) Income Approach Income Approach – adding up all of the income received by labor and other inputs in the economy

Expenditure Approach: GDP = C+I+G+Xn C – Consumer Spending I – Investment Spending G – Government Spending X N – Net Exports (Exports – Imports)

Summary/Exit Activity Write a brief statement in which you provide concrete examples of how the circular flow diagram and the expenditure model of GDP calculation demonstrate the concept of interdependency.