The financial market involves transfer of money initially from households to firms which pay it back in the form of interest and principal and dividends. Without mobilization of private and public savings, firms may not be able to improve their productive capacity or improve productivity. The financial market has a very important supporting role for products market. The financial market is the market in which households invest their savings and firms raise money for their long-term investments. The product market shows flow of income from households to firm. as the total expenditures by houscholds on goods and services. O b.as the total payments for factors of production made by households. as the total expenditures by households on goods and services, less taxes paid. Firms supply goods and services which consumers pay for with the income they earn in the factor market. Question: QUESTION 1 1 points Save Answer In the simple circular-flow diagram, with households and firms, GDP can be computed O a. The products and services produced using those inputs are bought by households in the market for goods and services (also called products market). The factors of production market involves flow of income/money from firms to households. Labor is compensated through wages and capital is paid in the form of interest (if it’s a debt capital) and profit/dividends (if it is equity capital). factors of production, primarily labor and capital, which is provided by households in the factor (of production) market. There are three major types of markets: (a) the factors (of production) market, (b) the products and services market and (c) the financial market. Federal, state and local governments they collect taxes from households and firms and provide public goods and services. Households provide labor, capital and savings while firms provide goods and services. Important actors in the circular flow of income are (a) households, (b) firms and (c) government. The circular flow diagram lets us visualize all these transactions between different market participants. We pay taxes to government out of our income which it uses to provide us with public goods and services, etc. Can be computed as the revenue firms receive from the sales of goods and services minus the payments they make to factors of production. Can be computed as payments firms make to factors of production plus revenues they receive from the sales of goods and services. We sell our goods and services at which we excel to others for money which we use buy theirs in return. According to the circular flow diagram GDP. Add the government to your diagram, and show how money leaks out of the economy to the government and how money is injected back into the economy by the government. Because we aren’t self-sufficient, we specialize in activities in which we are best at. Draw a correctly labeled circular-flow diagram showing the flows of funds between the markets for goods and services and the factor markets. What is the value of disposable income? Disposable income $ 510 d.Circular flow diagram shows how income flows in an economy between households, firms and government in product markets, factors of production markets and financial markets.Īn economy is all about satisfying the coincidence of wants of different people. What is the value of net exports? spending - 5110 Rest of world Por g purchases of sted and $100 Net exports = $ 30 c. What is the value of GDP in Macronia? Markets for goods Financial mark Wapes pot GDP = $ 690 Borowing b. To $100 Government trade - $10 Press - 1200 Bages, et a. The accompanying circular-flow diagram represents the economy of Macronia. GDP and the CPI - End of Chapter Problems Government purchases of goods and services - 5150 Government borrowing-560 1. Does the total flow of money out of households the sum of taxes paid, consumer spending, and private savings equal the total flow of money into households? Yes O NO What is the value of disposable income? Disposable income = $ 510 d. What is the value of net exports? Net exports =30 c. What is the value of GDP in Macronia? GDP = $ 690 b. GDP and the CPI - End of Chapter Problems 1.
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