THE CIRCULAR FLOW MODEL

1. THE CIRCULAR FLOW MODEL

4. Complicating the Model

10. 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

11. 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

12. 3. The money paid to households via the factor market is called • a. income • b. profit • c. wages • d. taxes • e. revenue

13. 4. The money paid to firms via the product market is called • a. wages • b. income • c. profit • d. revenue • e. taxes

14. 5. The money paid by households and firms to the government is called • a. profit • b. income • c. revenue • d. wages • e. taxes

15. 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

16. 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 .

17. 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

18. 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

19. End of Quiz

20. VIDEO TUTORIAL: GDP (3:50) • EPISODE 20: GDP (3:50)

21. 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

23. Video Tutorials: Real GDP and ECONOMIC GROWTH • EPISODE 21: Real GDP(2:36) • EPISODE 22: Growth (1:30) • Don’t worry. You won’t have to work problems with the formulas on the test.

24. What’s NOT counted in GDP? • Used goods • Intermediate goods • Illicit sales (BLACK MARKET) • Personal goods and services • Transfer of assets • Transfer payments

25. Counting GDP: EXPENDITURE METHOD:

29. 1. The value of all final goods and services produced within an economy in a year: • a. GNP • b. GDP • c. CPI • d. the business cycle • e. the circular flow model

30. 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

31. 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

32. 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

33. 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.

34. 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

35. 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

36. 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

37. 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.

38. 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.

39. 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.

41. The Business Cycle (1:07) • EPISODE 23: Business Cycles (1:07)

44. RECESSION • 2 consecutive quarters (6 mo.) of negative growth in real GDP • DEPRESSION • 8 consecutive quarters (2 yrs.) of negative growth in GDP

45. 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.