16B: measuring GDP and economic growth

GDP income approach

The total amount received/income earned by the owners of factors of production, including wages, salaries, and rental incomes.

Circular Flow Model

Illustrates how aggregate expenditure equals aggregate income in an economy.

Net Indirect Taxes

Calculated as indirect taxes minus subsidies, added to the income approach to measure GDP accurately.

Nominal GDP

Not adjusted for inflation, providing a basic measure of economic output.

Real GDP

Adjusted for inflation, offering a more accurate reflection of economic output.

Business Cycle

The periodic up-and-down movement in economic growth, consisting of expansion, contraction, peak, and trough phases.

Aggregate Demand

Represents the demand for all goods and services by all sectors in the economy.

Actual Aggregate Expenditure

Money actually spent by different sectors, including consumption, investment, government expenditure, and net exports.

Planned Aggregate Expenditure

Money sectors plan to spend, including planned consumption, investment, government expenditure, and net exports.

Aggregate Supply

Shows the relationship between the aggregate price level and real GDP supplied, influenced by factors like interest rates and availability of factors of production.

adjustment made so that expenditure and income approach equals

• The expenditure method values goods @ market price (includes indirect tax)  

• The income approach values goods @ factor cost (does not include indirect tax) 

  • Therefore, economist add ‘net indirect taxes’ to income approach 

  • Net indirect taxes = indirect taxes - subsidies