Let’s put dollar amounts on the flows in the circular flow diagram of Figure 2.2

Question

Let’s put dollar amounts on the flows in the circular flow diagram of Figure 2.2.
a) Suppose that businesses buy a total of $100 billion of the four resources (labor, land, capital, and entrepreneurial ability) from households. If households receive $60 billion in wages, $10 billion in rent, and $20 billion in interest, how much are households paid for providing entrepreneurial ability?
b) If households spend $55 billion on goods and $45 billion on services, how much in revenues do businesses receive in the product market?

Explanation / Answer

a) 100 - 60 - 10 - 20 : 10 for entrepreneurial ability. b) The revenue is the product market will be 55 billions as services aren't included in the product market.

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