2.1 The Circular Flow and GDP

a. Define (using the circular flow diagram as appropriate) how GDP is measured and its components. b. Calculate nominal GDP.

• GDP is a measure of final output of the economy.
• GDP as a total flow of income and expenditure can be represented by the circular flow diagram.
• There are three ways of measuring GDP: the expenditures approach, the income approach, and the value-added approach.
• Enduring understanding MEA-1: An economy’s performance can be measured by different indicators such as gross domestic product (GDP), the inflation rate, and the unemployment rate.