The Circular Flow of Income and Expenditure + Measuring Economic Activity: Prices and Unemployment + Measuring Economic Activity: GDP and Real GDP summary - Essay Example

Download file to see previous pages The firms also receive factors of production in exchange for the goods and services. There are different economic models used to describe the circular flow of income and expenditure. They are two sector economies comprising of the firm and the household only. Three sector economies that add the government to the two entities and four sector economies that add international trade to the three previous entities.
Households comprise of all individuals that try to find satisfaction for human needs and wants. The household have the possession of all production assets and resources and are primarily responsible for consuming the goods and services produced in an economy through consumption expenditure. Firms represent all the production houses and institutions including corporations, sole proprietorships and business partnerships that engage capital resources in production of goods and services. This group also buys factors of production through investment expenditure. The government denotes all the authoritative bodies mandated with enforcing the law and regulating the market (Marks and Kotula 236). This group is also mandated with passing laws that affect the market, including tax collection activities and oversight mandate. Product markets represent the entire market blend in an economy that trade in final services and goods.
The unemployment rate is an economic computation that estimates the total number of persons willing and able to work, but are unable to find any work. The unemployment rate in an economy is a widely used tool that assesses the labor force use and as a general pointer of economic activity. When individuals are jobless, the immediate families lack the necessary income to purchase goods and services. The loss of the purchasing power may lead to jobs losses for other individuals working in other related industries. Lack of income for most individuals means that the whole ...Download file to see next pagesRead More