2.1: The Circular Flow and GDP

Question 1

Public Sector

Answer 1

Part of the conomoy that is controlled by the government

Question 1

Private Sector

Answer 1

Part of the economy that is run by individuals and businesses

Question 2

Factor Payments

Answer 2

Payment for the factors of production (rent, wages, interest, profit)

Question 3

Transfer Payments

Answer 3

When the gov. redistributes income (welfare, ss benefits)

Question 4

Subsidy

Answer 4

Government giving money to businesses

Question 5

GDP and what does it tell us?

Answer 5

The dollar value of all final goods and services produced within a country in one year; how well the US is doing financially

Question 6

Change in GDP

Answer 6

((year 2-year 1)/year 1) * 100

Question 7

GDP and standard of living

Answer 7

GDP does not accurately measure standard of living as it needs to be adjusted to reflect the size of the nation’s population

Question 8

GDP per capita

Answer 8

GDP / population; it identifies how many products each person is making on average

Question 9

The three ways of calculating GDP

Answer 9

Expenditure, Income, Value Added

Question 10

Income approach

Answer 10

All the income earned from producing goods and services; GDP= wages + rent + interest + profits + statistical adjustments

Question 11

Expenditures Approach

Answer 11

GDP = C+I+G+ (X-M)

Question 12

What is consumer spending

Answer 12

The purchase of final goods and services. It is made up of durable, non-durable, and services (dental work, tutoring)

Question 13

What is government spending?

Answer 13

Spending made in the public sector. It includes payments made by the gov for goods and services, but not transfer payments, interest payments, or national debt

Question 14

Non-market transactions

Answer 14

Goods and services that provide value but don’t count in GDP (domestic activities)

Question 15

Circular Flow Model

Answer 15

A graphic representation of how different units of the economy interact

Question 16

Gross National Product

Answer 16

An estimate of the total value of goods and services provided by a country’s residents both domestically and internationally

Question 17

Value Added approach

Answer 17

GDP= Value of production - value of intermediate goods

Question 18

Product market

Answer 18

Where consumers exchange goods and services with produces/where people purchase what they want

Question 19

Resource Market

Answer 19

Business purchase the resources they desire to produce the goods customers demand