Firms pay wages, rent, interest, and profits to households.
True
Money flows from households to firms for goods and services, and from firms to households for factors of production
What is the role of firms in the circular flow model?
Produce goods and services
What type of income do households receive from firms for providing labor?
Wages
In the factor market, households sell factors of production to firms
What flows through the product market in the circular flow model?
Goods and services
Factors of production include labor, capital, land, and entrepreneurship
Firms pay wages, rent, interest, and profits to households
Households sell factors of production in the factor market.
Firms sell goods and services to households in the product market.
Steps in the circular flow model
1️⃣ Firms produce goods and services
2️⃣ Firms sell goods and services to households
3️⃣ Households pay firms for goods and services
4️⃣ Households provide factors of production to firms
5️⃣ Firms pay households for factors of production
GDP measures the total income earned by a country's residents, regardless of where it was produced.
False
Firms pay households wages and rent in the factor market.
Gross Domestic Product (GDP) is the total market value of all final goods and services produced within a country in a given period of time, usually a year
GDP is different from Gross National Product (GNP), which measures the total income earned by a country's residents
In the income approach, interest refers to returns on capital
Match the GDP component with an example:
Consumer Spending ↔️ Groceries
Investment ↔️ New machinery
Government Spending ↔️ Public education
Net Exports ↔️ Exports of electronics
Nominal GDP reflects economic growth, while real GDP tracks spending.
False
Match the GDP measure with its advantage:
Nominal GDP ↔️ Reflects current economic activity
Real GDP ↔️ Removes the effect of inflation
Match the component with its description:
Households ↔️ Provide factors, consume goods
Firms ↔️ Produce goods using factors
Factor Market ↔️ Exchanges factors for income
Product Market ↔️ Sells goods for spending
Firms purchase factors of production from households in the factor market.
GDP is the total market value of all final goods and services produced within a country in a given period.
Order the components of the expenditure approach to measuring GDP:
1️⃣ Consumer Spending (C)
2️⃣ Investment (I)
3️⃣ Government Spending (G)
4️⃣ Net Exports (X - M)
What does the production approach measure in GDP?
Value added at each stage
Consumer Spending (C) refers to total spending by households on goods and services
What does Investment (I) in GDP measure?
Spending by firms on capital assets
What is the circular flow model?
Conceptual framework of economic flows
Factors of production include labor, capital, land, and entrepreneurship.
True
How does money flow in the circular flow model?
Households to firms to households
What is the role of households in the circular flow model?
Provide factors of production
Where do households pay firms for goods and services in the circular flow model?
Product market
How does GDP differ from GNP?
GDP measures domestic production
The components of GDP are vital for understanding economic activity and the circular flow model.
True
What are the four main components of GDP?
Consumer Spending, Investment, Government Spending, Net Exports
Nominal GDP includes the effects of inflation, while Real GDP does not.
True
Real GDP is commonly used to compare economic performance across different time periods
What is the formula for calculating GDP using the expenditure approach?
GDP = C + I + G + (X - M)
Both the expenditure and income approaches for calculating GDP should yield similar results.
True
The income approach calculates GDP by summing wages, rent, interest, and profits
Households provide factors of production to firms in exchange for income