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Economics Unit 9 Module 10 Cheat Sheet (DRAFT) by

This is a draft cheat sheet. It is a work in progress and is not finished yet.

The Circul­ar-Flow Diagram

National accounts keep track of the flows of money among different sectors of the economy.
National income and product accounts are the national accounts.
Money flows between househ­olds, markets for goods and services, firms, and factor markets.
Households buy goods and services from the market for goods and services in return for money.
Markets for goods and services are supplied by individual firms. The money from the households then goes to those individual firms.
Firms purchase factors from the factor market.
The factor market is supplied by households (for example, labor).
Household: can refer to an individual or a group of people who share their income
Markets for Goods and Services: Also known as product markets, it is where households buy the goods and services they want.
Firm: an organi­zation that produces goods and services for sale and employs members of househ­olds.
Factor Markets: The market from which firms buy the resources to provide goods and services.
The underlying principle is that the inflow of money into each market or sector must equal the outflow of money from that market or sector

Expanded Circul­ar-Flow Diagram

Four sectors of economy
househ­olds, firms, govern­ment, and the rest of the world
Three types of markets
factor markets, markets for goods and services, financial markets
The three types of markets connect the four sectors of the economy
The total flow of funds, or GDP is all the spending in the market.
GDP = Consumer Spending + Investment Spending + Government Spending + Exports - Imports

Expanded Circul­ar-Flow Diagram


Domest­ically produced final goods and services, including capital goods, new constr­uction of struct­ures, and changes to invent­ories
Not Included (IF IF U)
Intermediate goods and services
Financial assets and transfer payments (stocks and bonds)
Foreign-produced goods/services
Used goods

The Value-­Added Approach to GDP

Survey firms and add up their contri­butions to the value of final goods and services.
Value added
The "­value added" of a producer is the value of its sales minus the value of its purchases of inputs (prevents double counting)

The Expend­iture Approach to GDP

Add up aggregate spending on domest­ically produced final goods and services in the economy - the sum of consumer spending, investment spending, government purchases of goods and services, and exports minus imports.
GDP = Consumer Spending + Investment Spending + Government Spending + Exports - Imports
Net exports = Exports - Imports

The Income Approach to GDP

Add up all the income earned by factors of production in the economy - the wages earned by labor, the interest earned by those who lend their savings to firms and the govern­ment, the rent earned by those who lease their land or structurs, and the profit earned by the shareh­olders, the owners of the firms' physical capital.

Circular Flow Diagram


A share in the ownership of a company
A loan in the form of an IOU that pays interest
Government Transfers
Payments from the government to indivi­duals
Disposable Income
The total amount of household income available to spend on consum­ption and to save
Private Savings
Disposable income not spent on consum­ption
Financial Markets
The banking, stock, and bond markets which channel private savings and foreign lending into investment spending, government borrowing, and foreign borrowing
Government Borrowing
The amount of funds borrowed by the government
Goverment Spending
Total expend­itures on goods and services by the government
Goods and services sold to other countries
Goods and services purchased from other countries
Goods and raw materials that firms hold on to facilitate their operat­ions. Invent­ories count as investment spending in the national accounts.
Investment Spending
Spending on new productive physical capital, like machinery, struct­ures, and changes in invent­ories
Final Goods and Services
Goods and services sold to the final user
Interm­ediate Goods and Services
Goods and services bought by one firm from another to be used as inputs
Gross Domestic Product
The total value of all final goods and services produced in the economy during a given year
Aggregate Spending
The total spending on domest­ically produced final goods and services in the economy