• Final Good or service- A good or service that is produced for its final user and not as a component of another good or service.
• Intermediate good or service- A good or service that is produced by one firm, bought by another firm, and used as a component of a final good or service (buttons, engine, tires)
• Within a country
• During a given time period
Circular Flows in the US economy
• Consumption expenditure- The expenditure by households on consumption goods and services
• Investment- The purchases of new capital goods (tools, instruments, buildings, and other constructions) and additions to inventories.
• Government expenditure on goods and services- The expenditure by all levels of government on goods and services.
• Net Exports of goods and services- The value of exports of goods and services minus the value of imports of goods and services.
• Exports of goods and services- Items that firms in US sell to world
• Imports of goods and services- Items that households, firms, and governments in the US buy from the rest of the world.
• Total Expenditure-The total amount received by producers of final goods and services.
• CIGNX- Consumption expenditure, investment, government expenditure on goods and services, net exports.
• Total expenditure- C+I+G+NX
• Labor earns wages
• Capital earns interest
• Land earns rent
• Entrepreneurship earns profits
Expenditure Equals Income
• Because firms pay out everything they receive as incomes to the factors of production, total expenditure equals total income.
• That is: Y=C+I+G+NX (Y is total expenditure)
• The value of production equals income equals expenditure
The Expenditure Approach
• Measures GDP by using data on consumption……….. cut off
Expenditures not in GDP
• Used Goods
• Expenditures on used goods is not part of GDP because these goods were part of GDP in the period in which they were produced during which time they were new goods.
• Financial Assets= When households buy financial asserts such as bonds and stocks they are making loands but not buying goods.
• Measure GDP by summing the incomes that firms pay households for the factors of production they hire.
• The US National Income and Product Account divide incomes into two big categories: - Wage income -Interest, rent, profit
• Wage income is the payment for labor services
• Includes net wages and salaries plus fringe benefits paid by employers such health-care insurance, Social Security contributions, and pension fund contributions.
Interest, Rent, and Profit Income
• Interest, Rate, and Profit Income, called net operating surplus in the…