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Final review

# Final review - Chapter 5 Circular Flow Diagram-Households...

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Chapter 5 Circular Flow Diagram-Households buy goods an services from firms, and firms use their revenue from sales to pay wages to workers, rent to landowners, and profit to firm owners. GDP equals the total amount spent by households in the market for goods and services. Y= C+I+G+NX GDP=Y C-consumption I-investment G-government purchases NX-net exports Closed economy Y=C+I+G Y-C-G=I (Y-C-G)=national saving or just saving S=I T =the amt the gov collects in taxes – the amt it pays back in the form of transfer payments(social security and welfare) S=Y-C-G S=(Y-T-C) + (T-G) Private public GDP Deflator= Nominal/Real x 100 Consumer price index= Price of basket of goods and services / price of the basket in the base year x 100 Inflation rate in year 2= (CPI in yr 2 – CPI in yr 1) / CPI in yr 1 x 100 Formula for turning \$ figures from year T into today’s \$ Amt. in today’s \$= Amt. in year T \$ x (Price level today/price level in yr T Real interest rate= Nominal interest rate – Inflation rate -If a reform of the tax laws encouraged greater saving, the result would be lower interest rates and greater investment. -If a reform in the tax laws encouraged greater investment, the result would be higher interest rates and greater saving.

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Final review - Chapter 5 Circular Flow Diagram-Households...

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