Question

4. (10 pts) One of the first models we learned this quarter was the Circular Flow Model. Please repro- duce the circular flow model below and label the four major economic agents. Also separate your model into the three parts that clearly represent where the (1) production, (2) distribution, and (3) consumption all occur. Using your model, clearly explain how it shows the two approaches to calcu- lating GDP. Label these two approaches clearly and distinctly on your model.

Answer 1

In question 4, is it open economy or closed economy? Please specify. Answer of question 5 is as follows:

Answer 5:Positive economics deal with facts and normative economics deal with what ought to be.

a. Positive economics. To convert it into normative we write it as - If the federal government lowers interest rate, firms should spend more money on investment.

b. Normative Economics. It can be converted into positive as - The federal government raised debt ceilings.

c. Positive. It can be converted into normative as - The government should not give free flu shots as it created shortage of flu shots.

d. Positive - It can be converted into normative as - Pepsi should not increase their prices.

e. Normative. people do not value public education is a positive economic statement.