AP Macroeconomics Flashcards: The Circular Flow and GDP
Written by AP Content Team, Verified for 2026 AP Exams, Last updated: May 2026
Review key ideas with interactive flashcards. This set includes 10 cards to help you master important concepts.
What does the expenditures approach for measuring GDP calculate?
The expenditures approach measures GDP by summing up all spending on final goods and services, which includes consumption, investment, government spending, and net exports.
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What does the expenditures approach for measuring GDP calculate?
The expenditures approach measures GDP by summing up all spending on final goods and services, which includes consumption, investment, government spending, and net exports.
What is nominal GDP?
Nominal GDP is the total value of all final goods and services produced in an economy during a given year, calculated using the prices current in the year in which the output is produced.
In the circular flow model, what is the relationship between total income and total expenditure?
According to the model, the total flow of income in an economy must equal the total flow of expenditure, as every dollar spent by a buyer becomes a dollar of income for a seller.
What is the value-added approach to measuring GDP?
The value-added approach calculates GDP by summing the value added to a product at each stage of its production, from raw material to final good.
Why does GDP only measure the value of *final* output?
GDP measures only final output to avoid the problem of double-counting, which would occur if the value of intermediate goods were included at each stage of production.
What are the three approaches to measuring GDP?
The three ways of measuring GDP are the expenditures approach, the income approach, and the value-added approach.
Using the expenditures approach, calculate the nominal GDP if consumption is $12 trillion, investment is $3 trillion, government spending is $4 trillion, and net exports are -$1 trillion.
The nominal GDP is $18 trillion, calculated by summing the components: $12T (C) + $3T (I) + $4T (G) - $1T (Xn).
What is the income approach to measuring GDP?
The income approach measures GDP by summing all the income earned by households and firms in the economy, including wages, rent, interest, and profit.
How does the circular flow diagram represent GDP?
The circular flow diagram represents GDP as the total flow of expenditure on goods and services, which must equal the total flow of income paid to the factors of production.
What is Gross Domestic Product (GDP)?
GDP is a measure of the total value of all final output (goods and services) produced within an economy over a specific period.