# THE CIRCULAR FLOW MODEL - PowerPoint PPT Presentation

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THE CIRCULAR FLOW MODEL. Complicating the Model. 1. Goods and services flow from a. firms to households via the factor market b. firms to households via the product market c . households to firms via the government d. households to firms via the factor market

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THE CIRCULAR FLOW MODEL

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## THE CIRCULAR FLOW MODEL

### Complicating the Model

1. Goods and services flow from

• a. firms to households via the factor market

• b. firms to households via the product market

• c. households to firms via the government

• d. households to firms via the factor market

• e. households to firms via the product market

2. The factors of production flow from

• a. firms to households via the product market

• b. firms to households via the factor market

• c. households to firms via the government

• d. households to firms via the product market

• e. households to firms via the factor market

3. The money paid to households via the factor market is called

• a. income

• b. profit

• c. wages

• d. taxes

• e. revenue

4. The money paid to firms via the product market is called

• a. wages

• b. income

• c. profit

• d. revenue

• e. taxes

5. The money paid by households and firms to the government is called

• a. profit

• b. income

• c. revenue

• d. wages

• e. taxes

• 6. When Americans buy foreign goods (import), money flows out of the circular flow. This is called a/an

• a. injection

• b. leakage

• c. consumption

• d. tax

• e. inflation

• 7. When foreigners buy American exported goods, money flows into the circular flow. This is called a/an

• a. injection

• b. leakage

• c. consumption

• d. tax

• e. inflation

.

• 8. Which of the following are LEAKAGES in the circular flow of goods/services/\$ in the product market and the flow resources/\$ in the factor market between households and firms(leakages in GDP)?

• a. taxes

• b. transfer payments (like social security)

• c. imports

• d. exports

• e. savings

• 8. All of the following are INJECTIONS into circular flow of goods/services/\$ in the product market and the flow resources/\$ in the factor market between households and firms (injections in GDP) EXCEPT

• a. subsidies

• b. transfer payments (like social security)

• c. exports

• d. investments

• e. savings

### VIDEO TUTORIAL: GDP (3:50)

• EPISODE 20: GDP (3:50)

• EPISODE #20 – GDP

### Gross Domestic Product (GDP)

• The value of all final goods and services

• Produced within an economy domestically

• In a single year

• Measured by

• Expenditure approach

• C + I + G + X

• Income approach

### Video Tutorials: Real GDP and ECONOMIC GROWTH

• EPISODE 21: Real GDP (2:36)

• EPISODE #21 – REAL GDP

• EPISODE 22: Growth (1:30)

• EPISODE #22 - GROWTH

• Don’t worry. You won’t have to work problems with the formulas on the test.

### AVERAGE LABOR PRODUCTIVITY

• a measure of how much the typical worker can produce

• Mathematically, this is the economy’s

AVG. LABOR = TOTAL OUTPUT (GDP)

PRODUCTIVITY TOTAL # OF WORKERS

### What’s NOT counted in GDP?

• Used goods

• Intermediate goods

• Illicit sales (BLACK MARKET)

• Personal goods and services

• Transfer of assets

• Transfer payments

### Counting GDP:

EXPENDITURE METHOD:

• 1. The value of all final goods and services produced within an economy in a year:

• a. GNP

• b. GDP

• c. CPI

• e. the circular flow model

2. Which of the following is NOT a component of GDP in the expenditure approach?

• a. consumption

• b. investment

• c. government purchases

• d. net exports

• e. disposable income

3. Which category makes up the largest share of the United States’ GDP?

• a. consumption

• b. investment

• c. government purchases

• d. net exports

• e. net imports

4. Which of the following is adjusted for inflation (changes in prices from year to year)?

• a. consumption

• b. net exports

• c. GNP

• d. nominal GDP

• e. real GDP

5. Economic growth is measured by

• a. an decrease in nominal GDP.

• b. an decrease in real GDP.

• c. an increase in nominal GDP.

• d. an increase in real GDP.

• e. none of these. It’s measured with GNP.

6. We don’t count the value of intermediate goods in GDP because

• a. their sale is not legal

• b. they are not actually bought or sold

• c. they simply represent a transfer of money

• d. they would be double counted when we count the value of final goods

• e. all of these

• 7. Which of the following is not counted in GDP?

• a. the purchase of a haircut

• b. the government's purchase of flak jackets

• c. the construction of a power plant

• d. the purchase of an I-phone

• e. the purchase of ten shares of Microsoft stock

• 8. Money is simply moved around and is not used to pay for goods and services (stock transactions, welfare payments, Social Security payments):

• a. Personal goods and intermediate goods

• b. Illicit sales

• c. Black market

• d. Transfer payments and financial transfers

• e. None of these

• 9. Which category of GDP is the government's payment of a Social Security check counted in?

• a. net exports

• b. government expenditures

• c. investment

• d. consumption

• e. The government's payment of a Social Security check is NOT counted in GDP.

• 10. Which of the following statements is NOT correct?

• a. General Motors’ purchase of machinery is counted in investment.

• b. Joe's purchase of a hot car stereo is not counted in GDP.

• c. Gertathe German's purchase of an American made movie is counted in net exports.

• d. The Defense Department's purchase of a flak jacket is counted in government purchases.

• e. Levi’s purchase of denim material is counted in consumption.

• 11. Which category of GDP is the purchase of a new home counted in?

• a. net exports

• b. government expenditures

• c. investment

• d. consumption

• e. The purchase of a new home is NOT counted in GDP.

• EPISODE 23: Business Cycles (1:07)

• EPISODE #23 – BUSINESS CYCLES

• Paul Solman: THE BUSINESS CYCLE – “The Beer Game”

• RECESSION

• 2 consecutive quarters (6 mo.) of negative growth in real GDP

• DEPRESSION

• 8 consecutive quarters (2 yrs.) of negative growth in GDP

### Online Video Series

• ECONOMICS USA - 30 minute programs which give explain economic concepts, giving historical background and context. Stream free.

• See Program #3: Economic Growth

• See Program #4: Booms and Busts for the Business Cycle.