Using the basic circular flow model, explain why the value of businesses’ output of goods and services equals the income of households.
- An economy produces final goods and services with a market value of $5,000 billion in a given year, but only $4,500 billion worth of goods and services are sold to domestic or foreign buyers. Is this nation’s GDP $5,000 billion or $4,500 billion? Explain your answer.
- Explain why the government spending (G) component of GDP falls short of actual government expenditures.
- Which of the following are counted in this year’s GDP? Explain your answer in each case.
A. Flashy Car Company sold a used car.
B. Juanita Jones cooked meals for her family.
C. IBM paid interest on its bonds.
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