two sector circular flow model

Question 1

Purpose of Flow chart

Answer 1

Economic systems are needed to help organize the national production and distribution of goods, services and incomes.

Question 2

Australia’s economy

Answer 2

Australia has a market capitalist economy where economic decisions largely depend on the operation of markets (a market system), and most businesses are privately owned by profit seekers (a capitalist system).

Question 3

3 Economic Questions

Answer 3

the ‘what and how much to produce’
the ‘how to produce’
the ‘for whom to produce’
Because of the basic economic problem of scarcity,

Question 4

define GDP

Answer 4

GDP is the final value of goods and services produced within a year

Question 5

what are the 4 main Flows

Answer 5

Flow 1 — the nation’s supply of resources.

Flow 2 — the demand for resources and the payment of national incomes.
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Flow 3 — the nation’s spending of incomes or demand for goods and services.
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Flow 4 — the production of final goods and services or the nation’s GDP.

Question 6

the flow model can also be used for what?

Answer 6

The model can also be used to predict the effects of ups and downs in economic activity (e.g. the effects on levels of inflation, unemployment, incomes).