1) Briefly, how would a sharp reduction in consumer spending be represented on the Circular Flow Diagram above in terms of the Markets for Goods and Services and for the Factors of Production?2) Briefly, how would an economic boom be represented on the Circular Flow Diagram above in terms of the Markets for Goods and Services and for the Factors of Production? Questions 1-2 are based on the Circular Flow Diagram below:Figure 1 The Circular FlowMARKETSRevenueFORSpendingGOODS AND SERVICES•Firms sellGoodsGoods and•Households buyand servicesservicessoldboughtFIRMSHOUSEHOLDS•Buy and consumegoods and services•Produce and sellgoods and services•Hire and use factors•Own and sellI factorsof productionof productionLabor, land,and capitalFactors ofMARKETSproductionFORFACTORS OF PRODUCTION•Households sellWages, rent,and profitIncome•Firms buy= Flow of inputsand outputs= Flow of dollarsCopyright 2004 South-Western

The circular flow diagram represents how firms and households are interrelated, how they fulfill the…

Answered: 1) Briefly, how would a sharp reduction…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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1) Briefly, how would a sharp reduction in consumer spending be represented on the Circular Flow Diagram above in terms of the Markets for Goods and Services and for the Factors of Production?

2) Briefly, how would an economic boom be represented on the Circular Flow Diagram above in terms of the Markets for Goods and Services and for the Factors of Production?

Questions 1-2 are based on the Circular Flow Diagram below:
Figure 1 The Circular Flow
MARKETS
Revenue
FOR
Spending
GOODS AND SERVICES
•Firms sell
Goods
Goods and
•Households buy
and services
services
sold
bought
FIRMS
HOUSEHOLDS
•Buy and consume
goods and services
•Produce and sell
goods and services
•Hire and use factors
•Own and sellI factors
of production
of production
Labor, land,
and capital
Factors of
MARKETS
production
FOR
FACTORS OF PRODUCTION
•Households sell
Wages, rent,
and profit
Income
•Firms buy
= Flow of inputs
and outputs
= Flow of dollars
Copyright 2004 South-Western

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