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UT Arlington ECON 2305 - Circular Flow and GDP

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ECON 2305 Lecture13Outline of Last Lecture I. InflationII. Price Index Outline of Current Lecture I. Circular FlowII. GDP Current LectureCircular Flow consists of product and factor markets. Product market (provided by businesses): final consumer goods / total monetary value of all final goods and services Factor market (provided by households): labor, land, capital, entrepreneurship/ total income (wages, rents, interest and profits)What is GDP?Total market value of all final goods and services produced during a year by factors of production locatedwithin a nation’s borders. It includes market value, final goods and services, within borders and timeframe. Excluded financial transactions:- Buy/sell securities (stocks, bonds)- Private transfer payments (funds from parents, gifts etc)- Government transfer payments (social security benefits)- Used goods (already included the first time)- Household production for their own personal use- Legal underground transactions that are not reported- Illegal underground transactions GDP limitations:Excludes non-market transactions No set standard for legal and illegal activitiesThese notes represent a detailed interpretation of the professor’s lecture. GradeBuddy is best used as a supplement to your own notes, not as a substitute.Quantity and not qualityCalculating GDP through Expenditure’s Approach:GDP = C + G + I + XC= Consumer expendituresI = Investment G = Government Expenditures X = Net exports GDP Components: Consumption:- Durable/Non-durable- Services- Largest component of GDPGovernment:- State, Local and Federal Investment:- Capital goods- Factories/ Plants- Inventories - Most volatile – many variables like technology (electricity/automobile/computer chips), interest rates and


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UT Arlington ECON 2305 - Circular Flow and GDP

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