46 Key Concepts Who was Simon Kuznets? What is Gross Domestic Product? What does GDP measure? What is an advantage of using GDP? Does GDP measure the whole economy? What are the two approaches we use to measure GDP?What are the two approaches we use to measure GDP? What is the expenditure approach?
47 Key Concepts cont. What are the four sectors of GDP? What is the income approach? What are the income components of GDP? What are nonincome adjustments? What are shortcomings of GDP? What is Net Domestic Product? What is national income?
48 Summary Key Concepts cont. What is personal income? What is disposable personal income? What is nominal GDP? What is real GDP? What is the chain price index?
50 GDP is the most widely used measure of a nation’s economic performance. GDP is the market value of all final goods produced in the U.S. during a period of time regardless of who owns the factors of production.
51 GNP is the market value of final goods and services produced by U.S. residents, no matter where they are located.
52 The circular flow model is a diagram representing the flow of products and resources between businesses and households in exchange for money payments.
53 Flows must be distinguished from stocks. Flows are measured in units per time period, for example, dollars per year. Stocks are quantities that exist at a given point in time measured in dollars.
55 The expenditure approach sums the four major spending components of GDP: consumption, investment, government, and net exports.
56 The income approach sums the major income components of GDP, consisting of compensation of employees, rents, profits net interest and nonincome expenses for depreciation and indirect business taxes.
57 Net domestic product (NDP) is GDP minus depreciation
58 National income (NI) is total income earned by households and is calculated as NDP minus indirect business taxes.
59 Personal income (PI) is the total income received by households and is calculated as NI minus corporate taxes and Social Security taxes plus transfer payments, net interest, and dividends.
60 Disposable personal income (DI) is personal income minus personal taxes. DI is the amount of income a household has available to consume or save.
61 Nominal GDP measures all final goods and services produced in a given time period of production.
62 Real GDP measures all final goods and services produced in a given time period, valued at the prices existing in a base year.
63 The GDP chain price index is a broad price index used to convert nominal GDP to real GDP.