Scarcity - unlimited wants and desires with limited resources and raw materials, therefore everything has an
opportunity cost, studied in Economics.
Gross Domestic Product - GDP is the most widely used measure of a nation's economic performance and is the
market value of all final goods produced in the United States during a period of time.
To avoid double counting, GDP does not include Intermediate Goods.
The Circular Flow is a diagram representing the flow of products and resources between business and
households in exchange for money payments.
The Expenditure Approach sums the four major spending components of GDP consisting of: consumption,
investment, government, and net exports.
Indirect Business Taxes include general sales taxes, excise taxes, and customs duties.
Personal Income is total income received by households and is calculated as national income less corporate
taxes, retained earnings, Social Security taxes plus transfer payments and net interest from government
securities.
Disposable Personal Income is personal income minus personal taxes.
Nominal GDP measures all final goods produced in a given time period valued at the prices existing during the
time period of production.
Real GDP is the value of all final goods and services produced during any time period valued at prices
existing in a base year.
GNP or Gross National Product is the market value of all final goods and services produced by a nation's
residents no matter where they are located.
A government payment to individuals not in exchange for goods or services currently produced is called a
Transfer Payment.
Final Goods are finished goods and services produced for ultimate users.
A Stock is a quantity that exists at a given point in time measured in dollars.
A Flow is a measurement in units per time period such as dollars per year. For example, income and
consumption can be measured per week, per month, or per year.
The national income account method that measures GDP by adding all incomes, including compensation of
employees, rents, net interest, and profits is called the Income Approach.
The GDP Price Chain Index is a measure that compares changes in the prices of all final goods during a given
year to the prices of those goods in a base year.
C + I + G + X(n) = GDP = Wages + Rent + Interest + Profits + Non-Income Charge + (GNP-GDP).
Disposable Income (DI) = Personal Income minus Personal Tax = Consumption + Saving.
National Domestic Product (NDP) = GDP minus Consumption of Fixed Capital (depreciation).
National Income (NI) = NDP minus (GNP minus GDP) minus Indirect Business Tax.
Personal Income = NI minus Social Security minus Corporate Income Tax minus Undistributed Corporate
Profits plus Transfer Payment.
GDP does not include:
a) used goods sold in the current time period.
b) foreign produced goods.
c) intermediate as well as final goods.
The Lower portion of the circular flow model contains factor markets in which households provide land, labor,
and capital.
Indirect Business Taxes are levied as a percentage of the prices of goods sold and therefore collected as
part of the firm's revenue.
The Gross National Product is the market value of all final goods and services produced by a nations'
residents no matter where thy are located.
Nominal GDP is the value of all final goods based on the prices existing during the time of production.
Intermediate goods and services used as inputs for the production of final goods.
Final Goods are finished goods and services produced for ultimate users.
Real GDP is the value of all final goods produced during a given time period based on the prices existing in a
selected base year.
Expenditure Approach is a broad price index which measure changes in prices of consumer goods, business,
construction, government spending, exports, and imports.
The Circular Flow Model is a diagram showing the flow of products from business to households and the flow
of resources from households to business.
Disposable Personal Income is the amount that households actually have to spend or save after payment of
personal taxes.
NDP is the gross domestic product minus depreciation of capital worn out in producing output.
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