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 inputs and outputs. Markets for Goods and Services Firms Households Markets for Factors of Production Based on this model, households earn income when v purchase v in markets for factors of production. Suppose Alyssa earns $825 per week working as a jewelry appraiser for Classy's Jewelry Store. She uses $8 to get her car washed at Spotless Car Wash. Spotless Car Wash pays Tim $375 per week to wash cars. Tim uses $300 to purchase a necklace from Classy's Jewelry Store. Identify whether each of the following events in this scenario occurs in the market for factors of production or the market for goods and services. Event Market for Factors of Production Market for Goods and Services Tim earns $375 per week working for Spotless Car Wash. Alyssa spends $8 to get her washed. Tim spends $300 to purchase a necklace from Classy's Jewelry Store. Which of the elements of this scenario represent flow from a household to a firm? This could be a flow of dollars, inputs, or outputs. Check all that apply. O The car wash Alyssa receives O The $300 Tim spends t purchase a necklace from Classy's Jewelry Store O The $375 per week Tim earns working for Spotless Car Wash True or False: For the economy as a whole, expenditures must equal income. O True O False

Brief Principles of Macroeconomics (MindTap Course List)

8th Edition

ISBN:9781337091985

Author:N. Gregory Mankiw

Publisher:N. Gregory Mankiw

Chapter7: Production And Growth

Section: Chapter Questions

Problem 5CQQ

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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
inputs and outputs.
Markets for
Goods and Services
Firms
Households
Markets for
Factors of Production
Based on this model, households earn income when
▼ purchase
v in markets for factors of production.
Suppose Alyssa earns $825 per week working as a jewelry appraiser for Classy's Jewelry Store. She uses $8 to get her car washed at Spotless Car
Wash. Spotless Car Wash pays Tim $375 per week to wash cars. Tim uses $300 to purchase a necklace from Classy's Jewelry Store.
Identify whether each of the following events in this scenario occurs in the market for factors of production or the market for goods and services.
Event
Market for Factors of Production
Market for Goods and Services
Tim earns $375 per week working for Spotless Car Wash.
Alyssa spends $8 to get her car washed.
Tim spends $300 to purchase a necklace from Classy's Jewelry Store.
Which of the elements of this scenario represent a flow from a household to a firm? This could be a flow of dollars, inputs, or outputs. Check all that
apply.
O The car wash Alyssa receives
O The $300 Tim spends to purchase a necklace from Classy's Jewelry Store
O The $375 per week Tim earns working for Spotless Car Wash
True or False: For the economy as a whole, expenditures must equal income.
O True
O False

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The circular flow model is used to understand the nature of flow of income from firms to households and again goes to firms with the help of two types of markets that are goods market and factor of production market.

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