ECON 111 Chapter 5: Chapter 5
Document Summary
Review of the definitions of microeconomics and macroeconomics. To judge whether or not an economy is doing well, it is useful to look at. Gdp measures the total income of everyone in the economy. Gdp measures total expenditure on an economy"s output of goods and services. For an economy as a whole, total income must equal total expenditure. Households buy goods and services from firms; firms use their revenue from sales to pay wages to workers, rent to landowners, and profit to firm owners. In the simple economy described by this circular flow diagram, calculating gdp could be done by adding up the total purchases of households or summing total income paid by firms. Note that this simple diagram is somewhat unrealistic. What are missing in the diagram: divide the dollar that you spend on a cup of coffee at tim hortons, among the various inputs of production including residual profit for the firm.
