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 ApproachIncome ApproachExpenditure Approach } Ways to

measure GDP

What is Calculated in GDP and what isn’t

• Included:– Domestically produced final goods and services– Final goods include capital goods, new construction of

structures, and changes to inventories

• 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– 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 – adding up all of the income received by labor and

other inputs in the economy

Expenditure Approach:

GDP = C+I+G+XnC – Consumer SpendingI – Investment Spending

G – Government SpendingXN – Net Exports (Exports – Imports)

Summary/Exit ActivityWrite 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.