Question

• Know how to label 4 of the graphs (circular flow diagram, Phillips curve, business cycle , loanable funds model)

Answer 1

Circular flow diagram: In the circular flow model, money and goods and services flow from one sector to another sector in a circuit way. In the below graph, land, labor, capital and entrepreneur flow from household sector to business firms. Business firms use these factors and produce the goods and services. When business firms use factors of production, they will pay the money to household sector in the form of rent, wages, interest and profit. Household sector buy the goods and services from the business firms and pay the money to the business firms.

Factor payment (Rent, inte profits Factor market Land, Labor, capital, Entrepreneur Land, Labor capital, entrepreneur Households Firms Goods and services Goods and senices Consumpte expenditure Consumption expenditure Product market

Phillip curve: Phillip curve represents the relationship between inflation and unemployment. According to this analysis, there is a negative relationship between inflation and unemployment. Thus, the Phillip curve slopes downward from left to right. Phillip Curve Inflation % 246 1% 256 Unemployment rate Business cycle:

Business cycle shows the trends in the real GDP in the long term growth trend. It includes, peak, recession, depression and expansion. Real GDP Peak Peak Recession Expansion Recorery Depression Time Activate

Loanable funds model: Under this model, equilibrium interest rate quantity of loanable funds is determined by the interaction demand and supply. | Interest rate Supply E 1 Demand Q Quantity of laonable funds Active Go to