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| Using the basic circular flow model, explain why the value of businesses’ output of goods and services equals the income of households. |
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- Illustrate using the circular flow model how resources are utilized by household and the business sectorThe simple circular flow model shows that: households are on the buying side of both product and resource markets. businesses are on the selling side of both product and resource markets. households are on the selling side of the resource market and on the buying side of the product market. businesses are on the buying side of the product market and on the selling side of the resource market.G. Menges developed the following econometric model for the West German economy*: Yt = β0 + β1Yt−1 + β2 It + u1tIt = β3 + β4Yt + β5 Qt + u2tCt = β6 + β7Yt + β8Ct−1 + β9 Pt + u3tQt = β10 + β11 Qt−1 + β12 Rt + u4t where Y = national incomeI = net capital formationC = personal consumptionQ = profitsP = cost of living indexR = industrial productivityt = timeu = stochastic disturbances Required: a. Which of the variables would you regard as endogenous and which asexogenous?b. Is there any equation in the system that can be estimated by thesingle-equation least-squares method?c. What is the reason behind including the variable P in the consumption function?
- In the circular flow model, households are buyers and firms are sellers in the a. government market b. monetary flows c. goods and services market d. labor marketOS consumer goods in terms of capital goods in Figure below?In the context of the circular flow model of the economy, which of the following best describes the relationshipbetween households, businesses, and the government?A. Households earn income by buying goods and services in the product market, spend that incomeon businesses, and pay taxes to the government, which then uses the revenue to provideresources.B. Households earn income by providing resources, spend that income on goods and services in theproduct market, and pay taxes to the government, which then uses the revenue for public services.C. Households earn income by paying taxes to the government, which then uses that revenue to buygoods and services from businesses, and businesses use the income to pay wages to households.D. Households earn income by providing resources to the government, which then redistributes thatincome among businesses to stimulate production and spending.
- In terms of the circular flow diagram, households make expenditures in the _____ market and receive income through the _____ market. product; financial resource; product product; resource capital; productIf all quantities produced rise by 5 percent and allprices fall by 5 percent, which of the following bestdescribes what occurs?a. Real GDP rises by 5 percent, while nominalGDP falls by 5 percent.b. Real GDP rises by 5 percent, while nominalGDP is unchanged.c. Real GDP is unchanged, while nominal GDP risesby 5 percent.d. Real GDP is unchanged, while nominal GDP fallsby 5 percent.The circular flow of income diagram shows: a) how households sell goods to firms b) how firms sell goods to banks c) how households produce services for their own use d) output equals income equals expenditure
- Use the information given and show in a table format how value added method is used toCalculate GDP. 1. A forester chops down 200 trees and sells them @ N$50 each to the coal factory on a farm. The coal factory processes these trees into coals and sells the coal @ N$20 000 to the coal wholesaler’s. The coal wholesaler’s goes to the market and sell 500 bags of coal’s @N$100 each to pick n Pay. Pick n Pay sells the 500 bags of coal’s @ N$150 each to its customers. According to this example, how much value added do the coals contribute to the GDP?Critically analyze the importance of the Circular Flow model and use it to explain why the Gross Domestic Product (GDP) equals Aggregate Expenditure (AE) and Aggregate Income (AI).The table below presents a brief summary of City A’s total spending, local GDP, and population changes. Read the table and answer the following questions. 2010 2020 Total spending ($ million) 89 104.12 Local GDP ($ millions) 110 134 Population 50,000 56,275 CPI deflators (2012=1) 0.96 1.05 Calculate per capita spending in 2010 and 2020, respectively, using constant dollars. *Results round to the nearest dollar. 2010 per capita spending: 2020 per capita spending: 2. Calculate the compound annual growth rate of per capita spending from 2010 to 2020 3. Calculate spending-to-GDP ratios in 2010 and 2020, respectively. *Results round to the nearest 2 decimal places. 2010 spending-to-GDP ratio: 2020 spending-to-GDP ratio: Interpret what the two spending-to-GDP ratios tell us about City A’s spending trend. 4. Assuming City A’s population grows at a constant rate in the next decade.…
