The Circular Flow Model
Two-Sector Model (Households and Firms)
Households supply factors → earn income → spend on products → firms produce → cycle continues
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Extended Model (Adding Government, Foreign Sector, Financial Markets)
Gross Domestic Product (GDP)
Key Words in the Definition
What GDP Includes
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What GDP Excludes
Two Approaches to Measuring GDP
Expenditure Approach (Spending Method)
Income Approach (Earning Method)
Worked Example
GDP vs. GNP
AP Exam Tips
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Common Mistakes
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