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A circular flow of goods and services result from factors of production and goods and services received. GDP can be measured as total expenditures, total income, or total revenue. Let's explore GDP through a hypothetical island economy with just one inhabitant.

Practice what you have learned about the circular flow model and how gross domestic product (GDP) is calculated in this exercises.

Two things. with value addition and without value addition.Point being that, any normal product depreciates in value due to consumption be it wear and tear, or other consumption metric. Now , if the car is bought for $10000 and used for 5 years and then sold for 4000$ ,then no value addition here because $6000 worth consumption is already done and you sold remaining $4000 worth …

In this unit, you'll learn to identify and examine key measures of economic performance: gross domestic product, unemployment, and inflation. The concept of the business cycle also gives you an overview of economic fluctuations in the short run.

Saving is accounted for as a leakage from the circular flow of income and expenditure. When households save, they are diverting a portion of their income away from current consumption expenditure. This creates a gap between total income and total spending.

Use a diagram to analyze the relationship between aggregate expenditure and economic output in the Keynesian model.

Now, we know from the circular flow in the economy that when an economy is at equilibrium, your aggregate output is equal to your aggregate expenditures or your aggregate expenditures is equal to your aggregate income.

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