1. Explain how the circular flow model showa the equilibruim between good
and laber markets
The circular floe model shows the equilibrium between goods and labor markets because
it shows hoe the cost of goods and services are returned to the business with the money
(wage) use by the consumers (households). The way it works is : households give
business labor, land , capital , entrepreneurship activities ect, in return business give
households the total income = wages + rent + interest + profit and the market the final
goods and services which cost would be returned by the money(wages) with which the
households buy this goods and services. This is why in the circular flow there is an
equilibrium between the goods and services provide by the business and the labor
markets which produce this goods and services
2. Difference between nominal and real values
Nominal values are the money value that takes into account the actual market prices at
which goods and services are sold without taking into account the purchasing power of
consumers. The real value instead is the measurement of economic values after
adjustments have been made for changes in the average of prices over the years. It
measure the changes n the income value and the set of prices in today’s purchasing power
and the purchasing power in past years
3. Why unemployment is considered a flow not a stock?
Unemployment is considered a floe because a stock is measured at a given point in time
and since unemployment rates vanes through time due to the constant people getting jobs
and the people losing jobs then unemployment is measure as a flow as something that
occurs over time . a flow is measured over unit of time. This only includes the people in
the labor force.
4. Effect of discourage workers on the unemployment rate!
The discourage workers affect the unemployment rate by making it inaccurate thus to the
fact that this type of people(discourage workers) are not actually looking for a job at that
precise time so they are not considered unemployed, meaning they are not taken into
account when calculating the unemployment rate. Unemployment rate is calculated by
subtracting the people who gets jobs from the total people unemployed and adding to the
employed ones, if people loose jobs they are subtracted form the employed ones and
added to the unemployed ones. If the flow is equal from both sides the unemployment
rate is stable, if there are more people unemployed then there is an increase in the
unemployment rates, on the contrary if there are more people employed then there is a
decrease in the unemployment rate.
5. The 4 types of unemployment (Explain 1
Frictional unemployment: this is because workers must search for appropriate
job offers, taking time thus the remain unemployed during that period.
Structural Unemployment: occurs when the current requirement of employers
surpasses the poor workers abilities and skills
Cyclical Unemployment: occurs when the current demand of labor(aggregate) is
insufficient to create full employment; business recessions
Seasonal Unemployment: comes and goes with seasons of the year in which
demand for particular jobs rises and falls. Like agriculture
6. Effects of the inflation and deflation on price levels.
Inflation and deflation occur and depending on the average level of prices,
meaning that even when inflation occurs some prices may be falling while others
are rising at a faster rate.
7.
8. What are business cycles?
The term business cycles use to refer to the changes in the pace of national economic
activity. Business fluctuations varies between expansions and contractions, however
the term business cycle is no longer use or business fluctuations because cycles
implies regular or automatic recurrent fluctuations. What we actually have are
contraction and expansion that varies greatly in length.
9. Why do expenditures equal total income in the cycle flow model?
Incomes are equal to the expenditure because there must be equilibrium between the
product Markets and the Labor Markets so that profits exists because the profits are
what is left over from the dollar value of output after wages, rents, interests, etc have
been paid. Thus the expending of one group equal the total income of the other and
vice versa.
10. Effects of the inflation and deflation on prices levels
Inflation and deflation occurs depending on the average level of prices, meaning
that even when inflation occurs some prices may be falling while others are rising at a
faster rate. Inflation occurs when there is an upward movement in the average of level
prices; on the contrary deflation occurs when there is a downward movement in the
average level prices. Because price rises when there is inflation then the purchasing
power of people decreases, but when there is deflation prices tend to decrease so the
purchasing power of people increases.
11. Unemployment signed of recessionary period
Unemployment is a signal of recession period because when there is
unemployment the labor force decreases so the cost of production lowers making
the average level prices decrease, so deflation occurs. When deflation occurs
businesses enter into a recession period because there is no expansion of the
business economically. This means that when there is unemployment a
recessionary period will emerge due to deflation. There is an overall decrease of
economic activities.
12. Inflation a signal of expansion period
Inflation is a signal of an expansionary period because when this happens
the average level prices increases, meaning the cost of production is high
due to the huge labor force that is producing, meaning that there is a big
overall increase in the economic activities, so businesses tend to expand
their industry and production activities when inflation occurs.
13. What are the characteristics of goods in GDP.
In the Gross Domestic Product only final goods are taken under
consideration. Goods that are transferred are not taking into consideration
because they don’t have an actual cost of production they have already
been counted, these goods include: transfer payments transfer if second
hand goods and services like legal underground activities.
14. explain the equation y=c+i+g+(x-m)
this equation comes from the measuring of gdp from the expenditure apporeach
this is done by lookin at each separate components of expenditures and adding
them all together. This components are: expenditures, investment, government
expenditures, and net exports. So y which refers ti gdp is equal to C:
consumption, I:investment, g:spending and net exports.
15.2 methos of gdp country
expenditure approach: a way of computing national income by adding up the dollar value
at current market prices of all final goods and services.
Income approach: a way of measuring national income by adding up all components of
national income, including wages, interest, rent and profits