2.1. Circular Flow & GDP

What two kinds of flows does the circular flow diagram represent?

• physical things and payment for those things

• supply and demand

• taxes and subsidies

• goods and services

The simplified circular model includes all of the following components except:

• Firms

• Households

• Factor Market

• Product Market

• Government

True or false. Land, labor, capital, and entrepreneurship are examples of factor payments.

• True

• False

True or false. Firms pay households for the factors of production that households supply with factor payments.

• True

• False

Funds "leak out" of the circular flow through:

• taxes

• factor payments

• consumer spending

• imports

One way funds are "injected" into the circular flow is through

• imports

• consumer spending

• factor payments

• taxes

True or False. The expenditure approach to calculating GDP is measured by the flow of funds into firms.

• True

• False

True or false. An automobile manufacturer's purchase of glass from a glassmaker for its cars' windows is an example of a final good or service.

• True

• False

True or False. GDP counts the sale of goods and services to both the consumer and the firms who produce the goods and services.

• True

• False

True or false. The four groups that purchase goods and services in an economy are firms, households, the government, and foreigners.

• True

• False