1. Four key markets and the circular flow of income The circular-flow diagram is a visual model of the economy. The circular flow of income is coordinated by four key markets. • The resource market coordinates businesses demanding resources and households supplying them in exchange for income. • The loanable funds market brings the net saving of households plus the net inflow of foreign capital into balance with the borrowing by businesses and governments. • The foreign exchange market brings the purchases (imports) from foreigners into balance with sales (exports plus net inflow of capital) to them. • The goods and services market coordinates the demand (consumption, investment, government purchases, and net exports) with the supply of domestically produced goods and services (real GDP). For each transaction in the following table, identify which of the four key markets the transaction occurs within. Transaction A government agency purchases a domestically produced computer. An American citizen traveling to Japan exchanges her U.S. dollars for Japanese yen. Jim and Tina save $100 per month in an account that will help pay for their child's education. To open a new business, Jim signs a lease to rent an empty building in the downtown area. Goods and Services Market Foreign Exchange Market Loanable Funds Market Resource Market
1. Four key markets and the circular flow of income The circular-flow diagram is a visual model of the economy. The circular flow of income is coordinated by four key markets. • The resource market coordinates businesses demanding resources and households supplying them in exchange for income. • The loanable funds market brings the net saving of households plus the net inflow of foreign capital into balance with the borrowing by businesses and governments. • The foreign exchange market brings the purchases (imports) from foreigners into balance with sales (exports plus net inflow of capital) to them. • The goods and services market coordinates the demand (consumption, investment, government purchases, and net exports) with the supply of domestically produced goods and services (real GDP). For each transaction in the following table, identify which of the four key markets the transaction occurs within. Transaction A government agency purchases a domestically produced computer. An American citizen traveling to Japan exchanges her U.S. dollars for Japanese yen. Jim and Tina save $100 per month in an account that will help pay for their child's education. To open a new business, Jim signs a lease to rent an empty building in the downtown area. Goods and Services Market Foreign Exchange Market Loanable Funds Market Resource Market
Chapter1: Making Economics Decisions
Section: Chapter Questions
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Transcribed Image Text:1. Four key markets and the circular flow of income
The circular-flow diagram is a visual model of the economy. The circular flow of income is coordinated by four key markets.
• The resource market coordinates businesses demanding resources and households supplying them in exchange for income.
• The loanable funds market brings the net saving of households plus the net inflow of foreign capital into balance with the borrowing
by businesses and governments.
• The foreign exchange market brings the purchases (imports) from foreigners into balance with sales (exports plus net inflow of
capital) to them.
• The goods and services market coordinates the demand (consumption, investment, government purchases, and net exports) with the
supply of domestically produced goods and services (real GDP).
For each transaction in the following table, identify which of the four key markets the transaction occurs within.
Foreign
Exchange
Market
Transaction
A government agency purchases a domestically produced
computer.
An American citizen traveling to Japan exchanges her U.S.
dollars for Japanese yen.
Jim and Tina save $100 per month in an account that will help
pay for their child's education.
To open a new business, Jim signs a lease to rent an empty
building in the downtown area.
Goods and
Services Market
Loanable
Funds Market
O
Resource
Market
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