The circular flow of income and output.

Question

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Answer 1

Question

Chapter 8, Problem 8.1LO

To determine

The circular flow of income and output.

Expert Solution & Answer

Answer to Problem 8.1LO

Circular flow of income and output show how income and output are distributed between different sectors of the economy. The circular flow of income is also used to calculate the national income of a country.

Two-sector economy In a two sector economy, the households supply factors of production to the Firms and receive factor payments in return of their services. The firms in turn supplies goods and services to the households and receive payments in return.

Three-sector economy

The three sector economy involves the Households, Firms and the Government sector. Households supply factors of production to the Firms and receive income in return. Firms use these factors to produce goods and services and supply to the households and government for final consumption. The government sector in turn supplies public goods to the households and make payments to households as factor payments.

Explanation of Solution

Four-sector economy

The four sector economy involves the Households, Firms, Government and the Rest of the World sector. Households supply factors of production to the Firms and receive factor income in return. Firm use these factors to produce goods and services and supply to the households and government for final consumption. The government sector in turn supplies public goods to the households and make payments to households as factor payments. While, the rest of the world sector makes factor incomes to the residents of a country working abroad. In addition to this, the rest of the world sector receives factor incomes of the residents of other countries working in our country.

The households and other sectors also save a part of their income in the financial sector. These savings are a leakage out of the income flow while the financial sector provides loans for investments, which are termed as injections into the spending stream.

Economics Concept Introduction

Introduction:

Circular flow of income and output describes the flow of income from firms to the households and output from firms and government to the households.

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1. The IS/MP model assumes that the Fed sets the real interest rate at a given level Rt. Suppose the Fed adopts a monetary policy rule that instructs it how to change the real interest rate in response to short-run output. Let's call this a monetary policy rule (MPR): The parameter x is positive. Rt=+xY a) Redraw the IS/MP diagram replacing the MP curve with the MPR curve. Show how an aggregate demand shock affects output and interest rates in the short run. Use the IS and MPR equations to solve for the changes in output and the real interest rate. b) How does the change in a affect investment in the IS/MPR model? Explain how a tax cut affects short-run output and investment in this version of the short-run model. The effect on investment is called crowding out. c) Add the Phillips curve to complete the short-run model. Illustrate how the Fed's choice of large it makes reveals its trade off between inflation and output in the short run.

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Answer 2

Question

Chapter 8, Problem 8.1LO

To determine

The circular flow of income and output.

Expert Solution & Answer

Answer to Problem 8.1LO

Circular flow of income and output show how income and output are distributed between different sectors of the economy. The circular flow of income is also used to calculate the national income of a country.

Two-sector economy In a two sector economy, the households supply factors of production to the Firms and receive factor payments in return of their services. The firms in turn supplies goods and services to the households and receive payments in return.

Three-sector economy

The three sector economy involves the Households, Firms and the Government sector. Households supply factors of production to the Firms and receive income in return. Firms use these factors to produce goods and services and supply to the households and government for final consumption. The government sector in turn supplies public goods to the households and make payments to households as factor payments.

Explanation of Solution

Four-sector economy

The four sector economy involves the Households, Firms, Government and the Rest of the World sector. Households supply factors of production to the Firms and receive factor income in return. Firm use these factors to produce goods and services and supply to the households and government for final consumption. The government sector in turn supplies public goods to the households and make payments to households as factor payments. While, the rest of the world sector makes factor incomes to the residents of a country working abroad. In addition to this, the rest of the world sector receives factor incomes of the residents of other countries working in our country.

The households and other sectors also save a part of their income in the financial sector. These savings are a leakage out of the income flow while the financial sector provides loans for investments, which are termed as injections into the spending stream.

Economics Concept Introduction

Introduction:

Circular flow of income and output describes the flow of income from firms to the households and output from firms and government to the households.

Want to see more full solutions like this?

Subscribe now to access step-by-step solutions to millions of textbook problems written by subject matter experts!

Answer 3

Question

Chapter 8, Problem 8.1LO

To determine

The circular flow of income and output.

Expert Solution & Answer

Answer to Problem 8.1LO

Circular flow of income and output show how income and output are distributed between different sectors of the economy. The circular flow of income is also used to calculate the national income of a country.

Two-sector economy In a two sector economy, the households supply factors of production to the Firms and receive factor payments in return of their services. The firms in turn supplies goods and services to the households and receive payments in return.

Three-sector economy

The three sector economy involves the Households, Firms and the Government sector. Households supply factors of production to the Firms and receive income in return. Firms use these factors to produce goods and services and supply to the households and government for final consumption. The government sector in turn supplies public goods to the households and make payments to households as factor payments.

Explanation of Solution

Four-sector economy

The four sector economy involves the Households, Firms, Government and the Rest of the World sector. Households supply factors of production to the Firms and receive factor income in return. Firm use these factors to produce goods and services and supply to the households and government for final consumption. The government sector in turn supplies public goods to the households and make payments to households as factor payments. While, the rest of the world sector makes factor incomes to the residents of a country working abroad. In addition to this, the rest of the world sector receives factor incomes of the residents of other countries working in our country.

The households and other sectors also save a part of their income in the financial sector. These savings are a leakage out of the income flow while the financial sector provides loans for investments, which are termed as injections into the spending stream.

Economics Concept Introduction

Introduction:

Circular flow of income and output describes the flow of income from firms to the households and output from firms and government to the households.

Want to see more full solutions like this?

Subscribe now to access step-by-step solutions to millions of textbook problems written by subject matter experts!

Answer 4

Question

Chapter 8, Problem 8.1LO

To determine

The circular flow of income and output.

Expert Solution & Answer

Answer to Problem 8.1LO

Circular flow of income and output show how income and output are distributed between different sectors of the economy. The circular flow of income is also used to calculate the national income of a country.

Two-sector economy In a two sector economy, the households supply factors of production to the Firms and receive factor payments in return of their services. The firms in turn supplies goods and services to the households and receive payments in return.

Three-sector economy

The three sector economy involves the Households, Firms and the Government sector. Households supply factors of production to the Firms and receive income in return. Firms use these factors to produce goods and services and supply to the households and government for final consumption. The government sector in turn supplies public goods to the households and make payments to households as factor payments.

Explanation of Solution

Four-sector economy

The four sector economy involves the Households, Firms, Government and the Rest of the World sector. Households supply factors of production to the Firms and receive factor income in return. Firm use these factors to produce goods and services and supply to the households and government for final consumption. The government sector in turn supplies public goods to the households and make payments to households as factor payments. While, the rest of the world sector makes factor incomes to the residents of a country working abroad. In addition to this, the rest of the world sector receives factor incomes of the residents of other countries working in our country.

The households and other sectors also save a part of their income in the financial sector. These savings are a leakage out of the income flow while the financial sector provides loans for investments, which are termed as injections into the spending stream.

Economics Concept Introduction

Introduction:

Circular flow of income and output describes the flow of income from firms to the households and output from firms and government to the households.

Want to see more full solutions like this?

Subscribe now to access step-by-step solutions to millions of textbook problems written by subject matter experts!

Answer 5

Chapter 8, Problem 8.1LO

To determine

The circular flow of income and output.

Expert Solution & Answer

Answer to Problem 8.1LO

Circular flow of income and output show how income and output are distributed between different sectors of the economy. The circular flow of income is also used to calculate the national income of a country.

Two-sector economy In a two sector economy, the households supply factors of production to the Firms and receive factor payments in return of their services. The firms in turn supplies goods and services to the households and receive payments in return.

Three-sector economy

The three sector economy involves the Households, Firms and the Government sector. Households supply factors of production to the Firms and receive income in return. Firms use these factors to produce goods and services and supply to the households and government for final consumption. The government sector in turn supplies public goods to the households and make payments to households as factor payments.

Explanation of Solution

Four-sector economy

The four sector economy involves the Households, Firms, Government and the Rest of the World sector. Households supply factors of production to the Firms and receive factor income in return. Firm use these factors to produce goods and services and supply to the households and government for final consumption. The government sector in turn supplies public goods to the households and make payments to households as factor payments. While, the rest of the world sector makes factor incomes to the residents of a country working abroad. In addition to this, the rest of the world sector receives factor incomes of the residents of other countries working in our country.

The households and other sectors also save a part of their income in the financial sector. These savings are a leakage out of the income flow while the financial sector provides loans for investments, which are termed as injections into the spending stream.

Economics Concept Introduction

Introduction:

Circular flow of income and output describes the flow of income from firms to the households and output from firms and government to the households.

Answer 6

Chapter 8, Problem 8.1LO

To determine

The circular flow of income and output.

Expert Solution & Answer

Answer to Problem 8.1LO

Circular flow of income and output show how income and output are distributed between different sectors of the economy. The circular flow of income is also used to calculate the national income of a country.

Two-sector economy In a two sector economy, the households supply factors of production to the Firms and receive factor payments in return of their services. The firms in turn supplies goods and services to the households and receive payments in return.

Three-sector economy

The three sector economy involves the Households, Firms and the Government sector. Households supply factors of production to the Firms and receive income in return. Firms use these factors to produce goods and services and supply to the households and government for final consumption. The government sector in turn supplies public goods to the households and make payments to households as factor payments.

Explanation of Solution

Four-sector economy

The four sector economy involves the Households, Firms, Government and the Rest of the World sector. Households supply factors of production to the Firms and receive factor income in return. Firm use these factors to produce goods and services and supply to the households and government for final consumption. The government sector in turn supplies public goods to the households and make payments to households as factor payments. While, the rest of the world sector makes factor incomes to the residents of a country working abroad. In addition to this, the rest of the world sector receives factor incomes of the residents of other countries working in our country.

The households and other sectors also save a part of their income in the financial sector. These savings are a leakage out of the income flow while the financial sector provides loans for investments, which are termed as injections into the spending stream.

Economics Concept Introduction

Introduction:

Circular flow of income and output describes the flow of income from firms to the households and output from firms and government to the households.

Answer 7

Chapter 8, Problem 8.1LO

To determine

The circular flow of income and output.

Answer 8

Expert Solution & Answer

Answer to Problem 8.1LO

Circular flow of income and output show how income and output are distributed between different sectors of the economy. The circular flow of income is also used to calculate the national income of a country.

Two-sector economy In a two sector economy, the households supply factors of production to the Firms and receive factor payments in return of their services. The firms in turn supplies goods and services to the households and receive payments in return.

Three-sector economy

The three sector economy involves the Households, Firms and the Government sector. Households supply factors of production to the Firms and receive income in return. Firms use these factors to produce goods and services and supply to the households and government for final consumption. The government sector in turn supplies public goods to the households and make payments to households as factor payments.

Answer 9

Expert Solution & Answer

Answer 10

Expert Solution & Answer

Answer 11

Explanation of Solution

Four-sector economy

The four sector economy involves the Households, Firms, Government and the Rest of the World sector. Households supply factors of production to the Firms and receive factor income in return. Firm use these factors to produce goods and services and supply to the households and government for final consumption. The government sector in turn supplies public goods to the households and make payments to households as factor payments. While, the rest of the world sector makes factor incomes to the residents of a country working abroad. In addition to this, the rest of the world sector receives factor incomes of the residents of other countries working in our country.

The households and other sectors also save a part of their income in the financial sector. These savings are a leakage out of the income flow while the financial sector provides loans for investments, which are termed as injections into the spending stream.