ECN 204 Chapter 5: Chapter 5.docx

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10 Apr 2012
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Gdp is the total income or total expenditures. For the entire economy the income equals the expenditure. Factors of production (factor payments): inputs such as labour (wages), land (rent) and. Both actors in the circular flow diagram are both buyers and sellers. Households take factors of production to the market then the firm uses the factors then the firm take wages rent and profit to the market then it become income for the household. Firms take goods and services to the market then the goods and services are bought by the household then the spending money of the household is taken to the market which then becomes revenue for the firm. Gdp is based on only the final goods of a good. Gdp is produced within a current year with current produced goods. Consumption: total spending by households on goods and services. Investments: total spending on goods that will be used on the future to produce more goods.

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