Chapter 8: Measuring the Economy’s Performance
8.1 The Simple Circular Flow
Why is a profit a cost of production?
The Circular Flow of Income and Product
Transactions in which households buy goods
Transactions in which businesses buy resources
The yearly amount earned by the nation’s resources (factors of production)
Includes wages, rent, interest payments, and profits received by workers, landowners, capital
owners, and entrepreneurs, respectively
Final goods and services
Goods and services that are at their final stage of production and will not be transformed into
yet other goods or services
Why must the dollar value of total output equal total income?