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Chapter 8: Q. 8.1 Learning Objectives (page 164)

Describe the circular flow of income and output.

Short Answer

Expert verified

The circular flow model depicts how money flows in an infinite cycle from producers to households and back again.

Step by step solution

01

Content Introduction

The circular flow model is an economic model that depicts the movement of funds, goods, and services between sectors of the economy. The model is also known as the circular flow of income since the money flows between the sectors are tracked to measure a country's national income or GDP.

02

Content Explanation

The circular flow model's main goal is to figure out how money circulates in a given economy. It divides the economy into two main players: individuals and businesses.

Money flows from producers to workers as wages, and then back to producers as employees spend their earnings on goods and services.

Analyzing the circular flow model and its current impact on GDP can assist governments and central banks in making monetary and fiscal policy adjustments to help strengthen an economy.

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Most popular questions from this chapter

Which of the following are production activities that are included in GDP? Which are not?

a. Mr. King performs the service of painting his own house instead of paying someone else to do it.

b. Mr. King paints houses for a living.

c. Mrs. King earns income from parents by taking baby photos in her digital photography studio.

d. Mrs. King takes photos of planets and stars as part of her astronomy hobby.

e. E⋆Trade charges fees to process Internet orders for stock trades.

f. Mr. Ho spends \(10,000on shares of stock via an Internet trade order and pays a \)10brokerage fee.

g. Mrs. Ho receives a Social Security payment.

h. Ms. Hernandez makes a $300payment for an Internet-based course on stock trading.

i. Mr. Langham sells a used laptop computer to his neighbor.

In Problem 8-21, what is the net investment?

Based on the information in Table 8-3, in what years was the economy in a recession? Explain briefly.

Consider the following table for the economy of a nation whose residents produce four final goods.

Assuming a 2018base year:

a. What is nominal GDP for 2019 and 2020?

b. What is real GDP for 2019and 2020?

Which of the following activities of a computer manufacturer during the current year are included in this year's measure of GDP?

a. The manufacturer produces a chip in June, uses it as a component in a computer in August, and sells the computer to a customer in November.

b. A retail outlet of the firm sells a computer completely built during the current year.

c. A marketing arm of the company receives fee income during the current year when a buyer of one of its computers elects to use the computer manufacturer as her Internet service provider.
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