AP Macro Unit 2 Notes

2.1

Leakages

-Taxes

-Savings

-Imports

Injections

-Investments

-Government Spending

-Exports

Circular Flow Diagram

Private Sector

-Part of the economy ran by individuals and businesses

Public Sector

-Part of the economy ran by the government

Factor Payments

-Payments for the factors of production

    -Land = Rent

    -Labor = Wages

    -Capital = Interest

    -Entrepreneurship = Profit

Transfer Payments

-When the government redistributes income

Subsidies

-Government payments to businesses

Main Macroeconomic Goals

-Economic Growth

-Limit Unemployment (Ideally 3-5%)

-Keeping Prices Stable (Limiting Inflation)

Output Expenditures Model

-Expenditure Approach

𝐺𝐷𝑃=𝐶+𝐼+𝐺+(𝑋−𝑀)

𝐶 = Consumption Expenditure 

𝐼 = Investment 

𝐺 = Government Spending 

𝑋 = Exports 

𝑀 = Imports 

Income Approach:

𝐺𝐷𝑃=𝑊+𝐼+𝑅+𝑃

𝑊 = Wages 

𝐼 = Interest 

𝑅 = Rent 

𝑃 = Profit 

Gross Domestic Product (GDP)

-Dollar value of all final goods & services produced within a country within a year

Final Goods

-Only final goods are counted in GDP

Consumer Spending