The circular flow model indicates that income flows from households to firms through product markets and back from firms to households through factor markets. Is the total amount spent by all households equal to the total income that flows back to all
households? Why or why not? Is the amount spent by each individual household equal to the amount that flows back to that specific household? Why or why not?
In our circular flow model, the total amount of spending for all households will be equal to the total amount of income. (The impact of issues such as taxes, exports, and imports could be added later.) However, the total amount spent by any one household is not necessarily equal to the amount of income which that specific household receives. Household income is determined by the value of the factors of production that the household owns rather than the amount of consumption by the household.
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According to the Monetarists, "Policy activism" is difficult if not impossible to perform successfully because
A) the timing of policy impacts on nominal GDP are known. B) the magnitude, size of impacts are known. C) the timing and magnitude of the impact of AD disturbances are known, forecasted with precision. D) Monetarists believe all of the above are correct.
Assume the price of beer is $4, the price of pizza is $10 and the consumer's income is $250. Which consumption bundle will NOT be the consumers choice?
A) 5 beers, 5 pizzas B) 0 beers, 25 pizzas C) 25 beers, 15 pizzas D) None of the bundles will be chosen.
Refer to Table 8.1. That the firm is perfectly competitive is evident from its
A) increasing marginal cost. B) increasing total cost. C) zero economic profits. D) constant marginal revenue. E) absence of marginal values at Q = 0.
The law of downward sloping demand states which of the following?
A. Food spending changes in the opposite direction as income changes. B. When demand rises, supply falls. C. Quantity response to price is elastic. D. A larger quantity is demanded at a lower price than at a higher price, all other things held constant.