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)
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 22: Growth (1:30)
• Don’t worry. You won’t have to work
problems with the formulas on the test.
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)
• 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.