The two sector flow model represents a good way to see how GDP is counted. What are the two methods or approaches to counting GDP?
What will be an ideal response?
Answer: The circular flow of income is a continuous flow of production, income and expenditure. It is categorized circular because it has neither any beginning nor an end. It is based on two basic assumptions:
1. In any exchange process, the producer or seller receives what the consumer or buyer spends.
2. Goods and services flow in one direction and money payment flow in the opposite direction that results to a circular flow.
Expenditures Approach: The expenditures approach computes as GDP = C + I + G + (X-M) where C is the level of consumption of goods and services, I is gross investment, G is government purchases, X is exports, and M is imports.
Income Approach: The income approach computes as GDP = National Income (NY) + Capital Consumption Allowance and Depreciation (CCA) + Indirect Business Taxes (IBT) + Net Factor Payments to the rest of the world (NFP)
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On a diagram with "calories consumed per day" on the horizontal axis and "exercise per day" on the vertical axis, we can draw a line along which your body weight at this moment will remain constant
This line is analogous to how ________ for changing values of the variables on the two axes. A) the IS curve holds income constant B) the IS curve holds the demand for money constant C) the LM curve holds the demand for money constant D) the LM curve holds income constant
Business cycles will occur if either of the two theories below characterizes the behavior of the economy:
A) the classical or the Keynesian theories of aggregate demand. B) the classical or the real balance theory. C) deflation impotence or rigid nominal wages. D) A and C.
The share of GDP going to federal taxes
A. has been about 16 to 20 percent for the past 40 years. B. has been about 35 percent for the past 40 years. C. was about 40 percent until the early 1980s and has dropped greatly since then. D. has risen steadily in the past 40 years to about 35 percent.
Critics of the Keynesian view argue that increases in government spending financed by borrowing will hamper the recovery from a recession and slow long term growth because
What will be an ideal response?