The options in the first question are : Based on this model, households earn inc
ID: 1161741 • Letter: T
Question
The options in the first question are : Based on this model, households earn income when (Firms , Households) purchase (Goods and services , Labor and capital) in markets for factors of production.
1. The economy's income and expenditure The following diagram presents a circular-flow model of a simple economy. The outer set of arrows (shown in green) shows the flow of dollars, and the inner set of arrows (shown in red) shows the corresponding flow of inputs and outputs Markets for Goods and Services Firms Households Markets for Factors of ProductionExplanation / Answer
Based on this model, househols earn income when firms purchase labor and capital in the market for factors of production.
Ginny spends $8 to order a mojito cocktail. This represents the purchase of good , therefore, this event recorded in the market for goods and services.
Ginny earns $600 per week working for A-Plus accountants . This represents the sale of factors of production because Ginny is selling her labor to A-plus consultants .Therefore, this event recorded in the market for factors of production.
Eric spends $100 to purchase tax services from A-plus consultants . This represents the purchase of services . Therefore, this event recorded in the market for goods and services.
The $350 per week Eric earns working for little havana represents the flow of dollars from firms to households .
Ginny's labor represents the selling of input i.e labor implies flow of input from household to firm.
The mojito's ginny receives represents the flow of output from firm to household .
Hence, option(B) only represents the flow from household to firm.
FALSE GDP can be used to measure the economy's income because it represents the total value of goods and services produced in an economy at a given period of time.