Circular Flow Model and GDP Paper

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Circular Flow Model and GDP Paper

  • Briefly explain what we mean when we speak of a “market” and an “agent” in the context of the circular flow model. .
  • The more complex circular flow model adds one more market to the model. What market is that? What additional types of economic behavior does the addition of the market make is possible to analyze?
  • The more complex model also adds two more types of economic agents. What are those two additional types of agents? What additional types of economic behavior does the addition of each type of agent make it possible to analyze?

year

GDP in current dollars

GDP in base year dollars

1923

$3.2 billion

$5 billion

1924

$4.5 billion

$4.5 billion

1925

$6 billion

$5.5 billion

1926

$7 billion

$6.2 billion

The table above shows measures of GDP for the country of Elbonia for 1923-1926.


· Does the column headed, “GDP in current dollars,” measure real GDP or nominal GDP? How about the one headed, “GDP in base year dollars?”



· Which year is the base year? How do you know?


· During these four years, was there inflation, deflation, or no change in the price level in Elbonia? Briefly explain how you know the answer to this question.



· Suppose you wanted to form a judgement about how Elbonia’s productivity changed between 1923 and 1926. Which column of figures would it be best to use for that purpose? Why?