Unit 2

Household- person or group of people who share income

Firms- organization that produces goods and services for sale

Factor or Resource Market- this is the market where factors of production is sold, bought by firms and sold by households

Product Market- market where goods and services are bought and sold

GDP: total market value of all final goods and services produced within a country's borders within a given year

GNP (gross national product) : measure of what it's citizens produce and whether they produce these items within its borders (international)

What's not included in GDP: Used or Second Hand Goods, Intermediate Goods- require further processing before they are ready for final use, Gifts or Transfer Payments (public vs private) : no output produced and recipients don't contribute to current production, Public : welfare social security or Private: scholarship, Unreported Business Activities (tips), Illegal Activities (drugs), Stocks and Bonds (no output produced), Non Market Activity (volunteer)

Expenditure approach: GDP = C (67% of economy, personal consumption expenditures- purchase of finished goods and services) + IG (gross private domestic investment- new factory equipment, construction of housing, unsold inventory of products built in a year, factory equipment maintenance) + G (government spending- government purchases of goods and services) + XN (net exports; exports - imports)

Net Domestic Product = GDP - Depreciation

Net National Product = GNP - Depreciation

GNP = GDP + Net Foreign Factor Payment

Gross Private Domestic Investment = Net Private Domestic Investment + Depreciation

-Budget: government spends money into two ways -1) government purchases of goods and services 2) government transfer payments

Government gets money from: Households, firms, foreign nations

If total govt spending is more tax than free revenue, it is considered a Deficit.

If total govt spending is less tax than free revenue, it is considered a Surplus.