Econ 104 Exam 1 study guide Exam
Questions and Answers
How much market vs government? Taxes fund government Trade offs between Social
Democracy and Capitalism
Incentives and results of free markets Competition in markets, people take care of
resources, compete, work, keep property
Quality → up
Growth → up
Goals: safety net
Incentives: Want to help people but not otherwise create work disincentives Goals and
Incentives of Welfare programs in the US
Allocative and productive efficiency Efficiency in markets
Participants: Firms, households
Markets: Factor market, product market Circular flow diagram
Act as a signal and allocate scarce goods Functions of prices in a market
, Gross Domestic Product (GDP) the value of goods and services produced within a country
in a year
Final goods and services Do NOT count intermediate goods
Buy resources, make payments, taxes Role of government in circular flow model
Banks --> lend/borrow Role of financial systems in circular flow model
Consumption (Y = GDP = C + I + G + NX) Household spending on goods/services
Investment (Y = GDP = C + I + G + NX) Firm spending and residential housing
Government purchases (Y = GDP = C + I + G + NX) Military, government employee
salaries, NOT transfer payments
Net Exports (Y = GDP = C + I + G + NX) exports minus imports
Household production, black market/informal sector, illegal stuff What is not counted in
GDP?
Questions and Answers
How much market vs government? Taxes fund government Trade offs between Social
Democracy and Capitalism
Incentives and results of free markets Competition in markets, people take care of
resources, compete, work, keep property
Quality → up
Growth → up
Goals: safety net
Incentives: Want to help people but not otherwise create work disincentives Goals and
Incentives of Welfare programs in the US
Allocative and productive efficiency Efficiency in markets
Participants: Firms, households
Markets: Factor market, product market Circular flow diagram
Act as a signal and allocate scarce goods Functions of prices in a market
, Gross Domestic Product (GDP) the value of goods and services produced within a country
in a year
Final goods and services Do NOT count intermediate goods
Buy resources, make payments, taxes Role of government in circular flow model
Banks --> lend/borrow Role of financial systems in circular flow model
Consumption (Y = GDP = C + I + G + NX) Household spending on goods/services
Investment (Y = GDP = C + I + G + NX) Firm spending and residential housing
Government purchases (Y = GDP = C + I + G + NX) Military, government employee
salaries, NOT transfer payments
Net Exports (Y = GDP = C + I + G + NX) exports minus imports
Household production, black market/informal sector, illegal stuff What is not counted in
GDP?
