question
Use the circular-flow diagram to explain how an increase in the amount of money spent by households results in an increase in the number of jobs in the econormy.
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As households spend more on goods and services, firms increase their production of goods and services. As firms increase production, additional workers are hired and other workers can receive additional income for their labor. The result is an increase in the number of jobs in the economy In addition, with more income, workers consume more goods and services and then the cycle begins again.
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Oil companies are investing heavily in projects that will extract oil from the "oil sands" of Canada, Near these projects, in Edmonton, Alberta, restaurants and other consumer businesses are booming. Explain why on the basis of a principle you learned about in this module
answer
This illustrates the principle that one person's spending is another person's income. As oil companies increase their spending on labor by hiring more workers, or pay existing workers higher wages, those workers' incomes rise In turn, these workers increase their consumer spending, which becomes income to restaurants and other consumer businesses.
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1. The other things equal assumption allows economists to
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Focus on rhe effects of only one change at a time
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2. Which of the following is true? The simple circular-flow diagram
I. includes only the product markets.
II. includes only the factor markets
Ill. Is a simplified representation of the macroeconomy.
I. includes only the product markets.
II. includes only the factor markets
Ill. Is a simplified representation of the macroeconomy.
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III only
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3. A firm is necessarily
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An oranganization
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4. In the United States, we can think of the factors of production as being owned by
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Household
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5. Economists are drawn to models by their
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Simplicity
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The inhabitants of the fictional economy of Atlantis use money in the form of cowry shells. Draw a circular-flow diagram showing households and firms. Firms produce potatoes and fish, and households buy potatoes and fish. Households also provide the land and labor to firms Identify where, within the flows of cowry shells, goods and services, or resources, each of the following impacts would occur. Describe how this impact spreads around the circle.
a. A devastating hurricane floods many of the potato fields.
a. A devastating hurricane floods many of the potato fields.
answer
The flooding of the fields will destroy the potato crop. Destruction of the potato crop reduces the flow of goods from firms to households: fewer potatoes produced by firms now are sold to households. An implication, of course, is that fewer cowry shells flow from households to firms as payment for the potatoes in the market for goods and services. Since firms now earn fewer shells, they have fewer shells to pay to households in the factor markets. As a result, the number of factors flowing from households to firms is also reduced.
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b A productive fishing season yields an especially large number of fish.
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The productive fishing season leads to greater quantity of fish produced by firms to flow to households. An implica- tion is that more money flows from households to firms through the markets for goods and services. As a result, firms will want to buy more factors from households (the flow of shells from firms to households increases) and, in return, the flow of factors from households to firms
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c. The inhabitants of Atlantis discover the music of singer Beyonce and spend several days a month at dancing festivals.
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Time spent at dancing festivals reduces the flow of labor from households to firms and therefore reduces the num ber of shells flowing from firms to households through the factor markets. In return, households now have fewer shells to buy goods with (the flow of shells from house- holds to firms in the markets for goods and services is reduced), implying that fewer goods flow from firms to households.
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