Macroeconomics and the Circular Flow Diagram

Vocabulary flashcards based on lecture notes about the circular flow diagram and GDP.

Circular-Flow Diagram

A simple depiction of the macroeconomy illustrating GDP as spending, revenue, factor payments, and income.

Households

Own the factors of production and sell/rent them to firms for income; buy and consume goods & services.

Firms

Buy/hire factors of production and use them to produce goods and services; sell goods & services.

Markets for Factors of Production

Markets where factors of production such as labor, land, and capital are traded.

Markets for Goods & Services

Markets where goods and services are bought and sold.

Gross Domestic Product (GDP)

Total income of everyone in the economy, and total expenditure on the economy’s output of goods & services.