Tuesday, January 6, 2015

GDP Circular Flow

Circular Flow

I have found no Circular flow FRQ's but definitely in the multiple choice section of the exam. Anyone know of anything different then please e-mail me. wcwaugh@aol.com.

Welker Video: The Circular Flow Model

Pajholden video: Circular Flow of Income:

Above is a simple model of the Circular flow.

1995 AP Exam
Answer (D)

2000 AP Exam
Answer (D) Households demand products produced by firms, yet at the same time, they supply their resources (labor) to firms.

Leakages & Injections
Leakages include: savings, taxes & imports
Injections include: investment , government purchases & exports
If Injections > Leakages = GDP growth (higher output)
If Leakages > Injections = GDP slow (less output)

Answer (E) Savings

Paradox of Thrift Video - This touches on the reason savings (even though it gets deposited into banks to be invested) is considered a leakage. More to come on this subject.