Econ Quiz

Circular Flow Model: This model illustrates how different sectors of the economy interact5. Individuals supply resources and demand products, while businesses supply products and demand resources5.

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Private Sector: The part of the economy run by individuals and businesses1.

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Public Sector: The part of the economy controlled by the government1.

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Factor Payments: Payments for the factors of production, namely rent, wages, interest, and profit1.... Labor earns wages, land earns rent, capital earns interest, and entrepreneurship earns profit6.

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Transfer Payments: When the government redistributes income (e.g., welfare, social security)1....

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Subsidies: Government payments to businesses1....

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Gross Domestic Product (GDP): The dollar value of all final goods and services produced within a country in one year2. GDP is measured in dollars, counts only new goods and services, measures production within a country's borders, and assesses annual economic performance2. GDP measures how well the U.S. is doing financially8.

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National Income Accounting: Economists collect statistics on production, income, investment, and savings to measure economic growth; this is called national income accounting9.

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Expenditures Approach: A method of calculating GDP that adds up all the spending on final goods and services produced in a given year10. The formula is GDP (Y) = C + I + G + (X-M), where C is consumer spending, I is business investment, G is government spending, and (X-M) is net exports11.

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Income Approach: A method of calculating GDP that adds up all the income earned from selling all final goods and services produced in a given year6....

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Value-Added Approach: A method of calculating GDP that adds up the dollar value added at each stage of the production process10.

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Consumer Spending (C): Purchases of final goods and services by individuals11. It includes durable goods (e.g., washing machines, refrigerators, cars), non-durable goods (e.g., food, clothes, toilet paper), and services (e.g., dental work, repairs, tutoring)12.

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Business Investment (I): Businesses spending on tools and equipment11. In economics, investment is when businesses buy capital like machines, resources, and tools13. New real estate also counts as investment spending since a new home can potentially be rented out14.

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Government Spending (G): Government expenditures on goods and services7.... This does not include money spent on transfer payments like welfare, social security, and subsidies, nor does it include interest payments on the national debt7.

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Net Exports (X-M): Exports minus imports11.

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GDP per capita: GDP divided by the population15. GDP per capita is the best measure of a nation's standard of living15.

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Intermediate Goods: Goods inside the final goods that don't count toward GDP16.

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Unemployment: Workers that are actively looking for a job but aren't working3.

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Unemployment Rate: The percent of people in the labor force who want a job but are not working3. It is calculated by dividing the number of unemployed persons by the number of people in the labor force, multiplied by 1003.

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Labor Force: To be included in the labor force, a person must be at least 16 years old, able and willing to work, and not institutionalized (e.g., not in jails or hospitals), in the military, in school full time, or retired3.

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Frictional Unemployment: Temporary unemployment or being between jobs17. Seasonal unemployment is a specific type of frictional unemployment17.

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Structural Unemployment: Changes in the labor force make some skills obsolete18.

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Cyclical Unemployment: Unemployment that increases when workers lose their jobs because of a recession19.

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Natural Rate of Unemployment (NRU): The amount of unemployment that exists when the economy is healthy and growing20. The U.S. is at full employment when there is 4-6% unemployment20.

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include formulas

To deepen your understanding of economics, here is a review of key formulas discussed in "Macro Topic 2.1- The Circular Flow and GDP"1.

GDP Calculation

There are a few different ways to calculate GDP2:

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Expenditures Approach: GDP (Y) = C + I + G + (X-M)3

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Where:

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C = Consumer Spending3

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I = Business Investment3

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G = Government Spending3

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X = Exports3

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M = Imports3

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Income Approach: Add up all the income earned from producing goods and services2....

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Labor Income = Wages4

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Rental Income = Income earned from property owned by individuals4

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Interest Income = Interest earned from loaning money to businesses4

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Profit = Money businesses have after paying all their costs4

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Value-added Approach: Add up the dollar value added at each stage of the production process2.

GDP Growth Rate

To measure growth from year to year, calculate the percent change in GDP5:

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% Change in GDP = ((Year 2 – Year 1) / Year 1) X 1005

Unemployment Rate

The unemployment rate is calculated as6:

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Unemployment rate = (# unemployed / # in labor force) X 1006

GDP per Capita

To determine the standard of living, calculate GDP per capita, which is GDP divided by the population7....

In addition to formulas, it is useful to understand the components of the circular flow model9.

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Private Sector- Part of the economy that is run by individuals and businesses9.

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Public Sector- Part of the economy that is controlled by the government9.

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Factor Payments- Payment for the factors of production, namely rent, wages, interest, and profit9.

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Transfer Payments- When the government redistributes income (ex: welfare, social security)9.

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Subsidies- Government payments to businesses9.

The study of macroeconomics can be used to measure the health of the whole economy, and guide policies to fix problems10. All countries have three macroeconomic goals: Promote Economic Growth, Limit Unemployment, and Keep Prices Stable (Limit Inflation)11.

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give me some terms based off the circular flow model

Based on the excerpts from "Macro Topic 2.1- The Circular Flow and GDP," here are some terms related to the circular flow model1:

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Private Sector: This is the part of the economy that individuals and businesses operate1.

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Public Sector: This is the part of the economy that the government controls1.

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Factor Payments: This refers to payments for production factors, specifically rent, wages, interest, and profit1.

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Transfer Payments: This is when the government redistributes income, for example, through welfare and social security1.

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Subsidies: These are government payments made to businesses1.

Within the circular flow model, it is important to understand the roles of individuals and businesses2:

1.

Individuals participate in the economy by both supplying resources and demanding products2.

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Businesses also participate by supplying products and demanding resources2.

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In the product market, individuals and the government create demand2.

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Businesses supply in the product market2.

An example question from a 2012 exam about the circular flow asks, "For an economy consisting of households and businesses only, which of the following is consistent with the circular flow of income and production?" The correct answer was, Households are suppliers of resources and consumers of goods and services3.

To further explore the circular flow model, consider how different events can affect it4:

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What happens when consumers begin to save more and spend less?4

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How does an increase in government taxes on consumers affect the model?4

3.

What is the effect of businesses laying off workers to cut costs?4

4.

How does the model change when the government increases subsidies to farmers?4

5.

What happens when a gas line breaks and causes a gas shortage?4

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