AP Macroeconomics - 2.1 Circular Flow and GDP

Flashcards covering key concepts from the AP Macroeconomics lecture on Circular Flow and GDP.

Gross Domestic Product (GDP)

The market value of the final production of goods and services within the geographic borders of a country in a given period.

Expenditures Approach

One of the three approaches to calculating GDP that involves adding all spending on final goods and services in an economy.

Income Approach

An approach to calculating GDP that involves adding all income earned within the borders of a country in a given year.

Value-Added Approach

An approach to calculating GDP that adds up all of the value added at various stages of production.

Final Goods and Services

The goods and services that are purchased by consumers for their intended final use.

Intermediate Goods

Goods that are used in the production of a final product.

Consumption (C)

The spending by households on final goods and services in a given year.

Investment (I)

Spending by businesses on capital and inventory to produce goods and services.

Government Spending (G)

Spending by government entities on goods and services.

Exports (X)

Goods that are produced in one country and sold in another.

Imports (M)

Goods that are produced in a different country than where they are purchased.

Net Exports

The value of exports minus the value of imports.

Real GDP per Capita

The real gross domestic product divided by the nation's population.

Non-Market Transactions

Economic activities that are not recorded or tracked by the government, such as informal labor or illegal activities.

Economic Indicators

Statistics that provide information about the economic performance and health of a nation.

Income Inequality

The unequal distribution of income within a population.

Depreciation of Capital

The decrease in the value of a nation's capital stock over time.

Limitations of GDP

GDP excludes non-market transactions, does not account for income inequality, and does not measure sustainability or well-being.

Circular Flow Diagram

A model that represents the flow of income and expenditures in an economy.

Nominal GDP

GDP measured without adjusting for inflation.

Real GDP

GDP adjusted for inflation.