GDP TEST TMR

WHAT IS GDP?

GROSS DOMESTIC PRODUCT

EXPENDITURE APPROACH

HOW MUCH MONEY IS SPENT IN 4 CATEGORIES

4 EXPENDITURE APPROACH CATEGORIES

CONSUMER: MONEY SPENT ON GOODS/SERVICES BY CONSUMER (EX: BUYING A HOUSE)

BUSINESS: BUSINESS INVESTS IN ITSELF (DOMINOS BUYS CHEESE FOR PIZZA)

GOVERNMENT: MONEY SPENT ON CITIZENS BY GOV. (FUNDING MILITARY)

NET EXPORT: EXPORTS WE SOLD TO OTHER COUNTRIES

INCOME APPROACH

HOW MUCH MONEY IS EARNED IN 4 CATEGORIES

4 INCOME APPROACH CATEGORIES

CONSUMER: SOMEONE’S PAYCHECK

BUSINESS: PROFIT MADE BY BUSINESS (MCDONALDS)

GOVERNMENT: MONEY COLLECTED BY THE GOV. (TAXES)

EXPORT INCOME: MONEY EARNED BY SELLING PRODUCTS TO OTHER COUNTRIES (CARS)

WHAT ARE THE LIMITATIONS OF GDP?

NON-MARKET ACTIVITIES, UNDERGROUND ACTIVITIES, NEGATIVE EXTERNALITIES, MATERIALISTIC THINGS DO NOT GURENTEE HAPPINESS

WHAT IS BUSINESS CYCLE?

GROWTH AND DECLINE IN THE ECONOMY

4 PHASES OF THE BUSINESS CYCLE

1.EXPANSION: GDP IS INCREASING

2.PEAK: GDP IS AT ITS HIGHEST'

3.CONTRACTION: GDP IS DECREASING (RECESSION OR DEPRESSION)

4.TROUGH: GDP IS AT ITS LOWEST

(IT REPEATS)

LIMITATIONS OF THE BUSINESS CYCLE

1. BUSINESS INVESTMENTS: WHEN BUSINESSES SPEND MONEY SINCE THEY EXPECT TO BE BUSY

2. INTEREST RATE & CREDIT: DURING AN EXPANSION, RATES ARE LOW MAKING = EASY TO GET CREDIT. VICE VERSA LOW=HARD

3. CONSUMER EXPECTATIONS: WHAT PEOPLE THIKNK WILL HAPPEN WITH THE ECONOMY (BUYING STOCKS)

4. EXTERNAL SHOCK: IF SOMETHING UNEXPECTED HAPPENS IT CHANGES THE WAY MONEY IS SPENT (NO BUYING STOCKS)