GDP equals the sum of production by firms of goods and services for personal consumption (1), private investment (2), government purchases (3), and net exports (4). Macroeconomics – The study of the aggregate (total) Behavior of the whole economy. Circular Flow of Income and Expenditure The circular flow of income and expenditure clearly presents the flow of resources and payments among the sectors of the economy. Figure 6.5 Spending in the Circular Flow Model. Circular flow Diagram is a visual model of the economy that shows how dollars flows through markets among households and firms. Breaking down Circular Flow Diagram The economy consists of millions of people engaged in many activities—buying, selling, working, hiring, manufacturing, and so on. Models of Circular Flow in Economics. Practice what you have learned about the circular flow model and how gross domestic product (GDP) is calculated in this exercises. Circular Flow Model Vocab Private Sector-Part of the economy that is run by individuals and businesses. These resources can be labor force or capital stock or both. The circular flow is comprised of the resource market, households, product market, businesses, and the government. Factor Payments-Payment for the factors of production, namely rent, wages, interest, and profit. Goods flow from firms to households through the … ... Economics AP®︎/College Macroeconomics Economic indicators and the business cycle The Circular Flow and GDP. 20 question review game covering the circular flow model with explanations. Household decides both economic resources and factors of production. Inputs flow from households to firms through the resource market. The Basic Circular Flow of Income Model is one of the most fundamental models in economics. 1) Two Sector Model : In this model, two sectors of a simple economy are considered, one is the household sector and another is the business sector which includes firms. Macroeconomics equilibrium is achieved when aggregate supply and aggregate demand meet. Definition: A Circular flow model of the economy is a graphical representation of the movement of money between three sectors – businesses, households, and the government – and three markets – production factors, products, and the financial market. AP Macroeconomics Chapter 8: Macroeconomic Measures of Performance 8.1 The Circular Flow Model The Circular Flow Model Circular flow of economic activity: a model that shows how households and firms circulate resources, goods, and incomes through the economy. For AP, IB, or College Microeconomics and Macroeconomics. The circular flow model shows these flows and shows that the production of goods and services generates factor incomes (5) to households. By Raphael Zeder | Updated Jun 26, 2020 (Published Sep 19, 2016). Public Sector-Part of the economy that is controlled by the government. It is also often referred to as the Two Sector Model, because it analyzes the relationship between two economic sectors; households and firms.More specifically, the model illustrates basic exchange processes between the … Two sector economy… Macroeconomics Aggregates: – Unemployment rate: Percent of people in the labor force is not working but searching for work. Transfer Payments-When the government redistributes income (ex: welfare, social security). It clearly depicts the leakages and injection in any economy. The circular flow model demonstrates interactions within the economy, including;-interactions between households and firms-interactions between different sectors of the economy. 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