 Today, we're going to talk about what determines how big the economy is, how big GDP or gross domestic product is, whether the economy is booming and will have a lot of employment and income, or whether the economy is in a recession or even in a depression. Economists have developed a model based on Keynes' ideas called the income expenditure model and that's what we're going to talk about today. First, we're going to start off in this model with the GDP accounting that you learned earlier this week. Remember, GDP is gross domestic product and it's divided into several different components that make it up. Consumption spending, like clothes and food, investment spending, like plant and equipment and it also includes housing, government expenditure, G, which includes expenditure on aircraft carriers, bombs, schools, good things and bad, exports, which we sell to foreigners, people abroad and then we have to subtract out of all of this imports because after all, what GDP measures is the total amount of goods and services that are produced in any given period of time, say, a year in a country, in our case, in the United States. So we need to subtract out imports. All of those goods that we buy from all over the world, if you go into Walmart, you know that we buy a lot of our consumer goods from China, India and elsewhere. GDP equals consumption expenditure, investment expenditure, government expenditure plus exports minus imports. Now, remember that what this shows is that we have different groups in our society who are engaging in this expenditure. Households buy consumer goods, businesses by investment goods like factory equipment, but of course we also have housing in here. Don't forget that. The government, federal and state and local buy government expenditures like schools, foreigners buy our exports and we import from foreigners. So each of these categories reflect expenditure by a different group. Now, next we're going to talk about the income expenditure model which tries to explain how much consumption, investment, government expenditure, exports and imports are demanded by different groups in society. See you next time.