Chapter 5 National Income Accounting

Chapter 5 National Income Accounting - CHAPTER FIVE...

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CHAPTER FIVE: NATIONAL INCOME ACCOUNTING SIMPLE CIRCULAR FLOW DIAGRAM Shows important relationships in an economy. In what two markets do firms and households interact in an economy? The product markets and the factor market Draw a Simple Circular Flow Diagram. Be sure to accurately label all parties, markets, and flows. Do leakages and/or injections exist? Yes subsidies and taxes; however there is no government nor international trade so everything is self contained and there is no leakages nor injections Note 1. The dollar value paid by a buyer exactly equal to the amount received by the seller 2. Revenue received by either firms or households is an expense for the other 3. Total income received by households equals the total value of what is produced Firms pay workers wages and salaries for labor. They also pay rent to land owners and capital owners. These payments are made so firms can hire resources for production. GROSS DOMESTIC PRODUCT (GDP) Define GDP- the market value of all final goods produce in a nations boarders in a given time period Note 1. Why is the value or amount paid by the final consumer used? To Avoid double counting Example: Measuring the value of a $10 pizza. Stage of Production
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Chapter 5 National Income Accounting - CHAPTER FIVE...

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