10A

Spending and Expenditures

• Expenditures: Refers to spending, which is the income of the country.

• Real GDP is determined by the total of expenditures, which are divided into four components.

GDP Components

• Historical Perspective: GDP conceptualized as C + I + G + X.

  • C = Consumption

  • I = Investment

  • G = Government Spending

  • X = Exports

• Origin: The model was developed to explain the Great Depression and remains relevant.

Importance of "Real"

• Real: Adjusted for inflation, allowing year-to-year comparisons.

• Gross: Refers to total value without deductions.

• Domestic: Goods and services produced within the USA.

• Product: Focus on final goods and services, not intermediate.

Economic Circulation

• Demonstrates the flow of income:

  • Example: A $35,000 car where $25,000 represents consumption, which translates to income for others (e.g., workers, owners).

  • Income unspent is either saved or consumed, thus affecting overall economy and expenditures.

Disposable Income

• Defined as income after taxes:

  • Calculation: Disposable income = Income - Taxes.

  • Example: $100 income, $10 taxes, $90 disposable, spent $85, saved $5.

• Critical for understanding Consumption vs Savings:

  • Consumption is how households use disposable income, while savings is what's left after spending.

Circular Flow Model

• Emphasizes that income leads to consumption, with portions saved for future use.

• Investments (e.g., by wealthy individuals like Taylor Swift) contribute to businesses that employ and circulate income further.

Conclusion of Class Notes

• Disposable Income: Key concept for understanding the economy.

• Trends observed from 2002 to 2021 show rising disposable income leading to increased consumption, although not all disposable income is consumed.

• Visual represented by a 45-degree line indicates points between income and consumption, illustrating spending behavior.

• Note: Inconsistencies can arise in economic data (such as COVID impacts).