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

End of Quiz

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• d. the business cycle• 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. Gerta the 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.

The Business Cycle (1:07)

• 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.