The aggregate demand/ aggregate supply models

GDP 

GDP gross domestic product- total market value of all final goods and services produced within a country's borders with in each year. 

GNP gross national product- the sum of all total goods and services produced by residents of a country during a given year. Using foreigners. 

Intermediate goods- goods that require further processing before they are ready for final use. Ex: steering wheel, something that you use to make a product

What’s not included in GDP? 

1.) Used goods/ second hand goods- Trying to avoid double or multiple counting. 

Ex: whoever purchased that item once is official. So, if someone bought it again it can't be counted.

2.) Gifts or transfer payments- can be public or private.

Ex: transferring funds from one institution/ individual to another. For private it would be scholarships for transfer it would be welfare or social security. 

3.) Stocks and bonds- purely financial transactions

4.) Unreported business activity- tips, things you receive in cash. 

5.) Illegal activity- drugs, trafficking, prostitute, etc. 

6.) Intermediate goods

7.) Non-market activities- volunteer or family work

GDP= C+IG+G+XN

C= Personal consumption expenditures 67% of the economy (saving money)

G= government spending

XN= net exports (exports- imports)

IG= Gross private domestic investment

 1.) New factory equipment 

2.) Factory equipment maintenance 

3.) Construction or housing

4.) Unsold inventory of products built in a year

Expenditure approach- ask all the producers the value of final goods and services that they produce and then add them up. More valid then the income approach.

EA= C+IG+G+XN

Income approach- add up all the income that resulted from selling all final goods and services produced in each year. Don't need to show a receipt.

Formulas to remember: 
IA= WRIP+statistical adjustment

W=wages (listed as compensation, salary, salary supplement, and employees)

R=rents (money owed to land lords)

I=interests (interest’s income, based upon capital)

P=profits (corporate profits)

Statistical adjustment- income approach must equal the expenditure approach.

Budget surplus/ Deficit= government purchases of goods and services+ Government transfer payments- government tax and fee collection.

+ is defect

- is surplus

Trade surplus/deficit= export - imports

- is defect

+ is surplus

National income=

option 1: Compensation of employees (wage and salary supplements) + rental income+ proprietor’s income (owner entrepreneur) + interest income+ Corporate profits. CE+RI+PI+II+CP

option 2: GDP- indirect business taxes- depreciation (consumption of fix capital)-net foreign factor payment. 

GDP- IBT- D-NFP

Disposable personal income= national income- household taxes+ government transfer payments

NI-HT+GTP

Net Domestic Product (NDP)= GDP- Depreciation

Net National Product (NNP)= GNP-Depreciation

GNP=GDP+NFFP (net foreign factor payment)

Gross (total) private domestic investment= net private domestic investment+ depreciation

Budget- government spends money (gained from taxes, businesses, and foreign nations) in two ways 

1.) Government spending or purchases of goods and services

2.) Government transfer fees

Budget deficit- total amount of money that government borrows in a year (because total government spending exceeds tax and fee revenue)