Question

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What does the circular flow represent? Explain the relationship between business and households. Who is on the supply and the demand sides. Based on that you recognize that total income should be equal to total output.

Define the GDP. Distinguish between final and intermediate goods. Using intermediate goods calculations show how you could calculate the value of the final good.

List and briefly explain what is not included in the GDP.

Answer 1

Intermediate goods Answer- Final goods The value of final goods The value of intermediate Circular flow - It is a model of the economy in which is included in the nationay the majoy exchanges are represent as Houos of money goods is not included in goods and services etc. betroueen economic agents. the national income. income. Txample - flour, cotton Relationship between business and households Example - Television, bread or bakery product etc The flow of money as consumption of money as consumption Consumption expenditure on the purchase of Expenditure **Using Intern a Interioediate goods calculations the value of final goods goods and services by the householt Business Household is shown to go to the business Sedoy Sectos Famer A proluces In this example A commodity sector by an achows in the Thceme Cotton Loorth € 2000 can be inte medicte quod cipper portion of the diagtem. → payments and sells it to 8 au cuell as a final goody > The horisehoHs provide refcrrces and labor and purchase depending upon its nature goods and service ceenile firms provide goods and services B Proclucer Thread ofeue and puzlhcue resources and labor worth $ 3ooo and + The Households supply labour to firms. Poms pay sells it toc usages to households for the labecer. Herursehels we wages to buy products com the fim. The firms supplier predeces Cloth Consumers to the product to the hoveho ks. worth $ 4500 and The demand for proclud creates a derived demand foc Sells it to consumers. labave Example - Sugar is an intermediate geod ushen it is **9DP - gross domestic product is the market value wed for making sweets. However, if His uued by of au #nal goods and services produced in a country by consumers, then it becomes a final goods. in a given time period. ** Not included in the GDP ** Compassion between Anal goods and Intermediate goods - Sales of used goods, Final goods Intermediate goods - Transfer payments meede by the government. ci) The goods which are used to the goods which are wed either tor final consumption - Intermediate goods that are used to produce other up in producing the final or for capital formation tinal goods. goods and services. WPISTOIRE