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3 MACROECONOMIC INDICATORS. THE EFFICIENCY OF THE
ECONOMY

1 The simple macroeconomic model (closed and open types).
2 Gross Domestic Product (GDP) and Gross National Product (GNP).
3 Definition of «Real Gross Domestic Product».
4 Critics of GDP.
5 Social Progress Index is a generally indicator of efficiency of the economy.

Key words: Circular flow diagram, Gross Domestic Product, Gross National
Product, Real and Nominal GDP, Per capita GDP.

Circular flow diagram is a diagram that views the economy as consisting of
households and firms interacting in a goods and services market and a labour market.
The light arrows going in a clockwise direction show that the households
supply the factors of production to the firms, and the firms produce goods and
services for the households. The dark arrows going in a counter clockwise directions
show the money values of the households' expenditures on the final goods and
services, which supplies exactly the required amount for the firms to pay the factor
incomes (wages, rent, profit) to the household suppliers of those factors (labor, land,
capital).

Figure 3.1 Circular flow diagram
Circular-flow diagram is a visual model of the economy that shows how
dollars flow through markets among households and firms.

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