Unit 2

Circular flow diagram- represents transactions in an economy
Product market- place where goods and services are produced by businesses
Factor Market- the place where households sell resources and businesses buy resources
Firms- an organization that produces goods and services for sale
Household- a person or group of people that share their income, they also sale factors of production to businesses

GDP (Gross Domestic Product): Total market value of all final goods and services that is produced within a country's borders in a given year

GNP (Gross National Product): total market value of all final goods and services by citizens of that country on its land or foreign land

Included in GDP:
C- Personal Consumption Expenditures (65%)
IG- Gross Private Domestic Investment ( 17%)
ex: new factory equipment, factory equipment maintenance, construction of housing and unsold inventory of products built in a year
G- Government Spending (20%)
ex: school buses, teachers, salaries, community places
XN- Net Exports ( Exports- Imports) (-2%)

What's not included in GDP:
1. Intermediate goods- goods that require further processing before they are ready for final use
2. Used/ Second hand goods ( avoid double counting)
3. Purely financial transaction ( stocks and bonds)
4. Illegal activities ( drugs)
5. Unreported business activity ( unreported tips)
6. Transfer payments
- public ( social security, veterans and welfare)
- private ( scholarship)
7. Non- market activities
- volunteering
- babysitting
- any work that you preform for yourself