# SOLUTION: University of Central Florida Intermediate Macroeconomics Flow of Income Question

Attached. Please let me know if you have any questions or need revisions.Intermediate MacroeconomicsQuestions for the ExamCh. 2 (Mankiw)1. Provide an explanation of the circular flow of income and expenditure.The circular flow model is used to trace the movement of money in society. Workers get incomefrom producers and they end up spending it to pay for commodities developed by producers.Thus, it demonstrates that the amount of income earned by households is the same as theexpenditure they use to acquire goods and services.2. Define the construct of Gross Domestic Product (GDP). Does it include all the goods andservices produced in an economy? If not, why does it leave out some goods and services?What types of goods are included in GDP calculations? Please answer and explain.Gross domestic product (GDP) is the monetary value of a country’s finished commodities in agiven period. It shows the economic wellbeing of specific country because it focuses ondomestic production. GDP does not include all the goods and services produced in an economyas it excludes intermediate goods and services because the expenditure on intermediate goodsand services is included in the market value of final goods and services. The types of goodsincluded in GDP calculations include investments, exports, and private and public consumption.3. Differentiate between GDP and per capital GDP. Similarly, differentiate betweennominal and real GDP. When studying economic growth, which metric should we focuson?GDP captures a country’s economic health while GDP per capita is the theoretical monetaryvalue earned by a country’s citizens. GDP per capita is attained by dividing GDP with the totalpopulation. Nominal GDP is based on current market prices while real GDP is based on inflationadjustments. When studying economic growth, it is vital to focus on real GDP as the mostappropriate metric.4. Provide a brief explanation of the income and expenditure methods for calculating GDP.Focusing on the expenditure method, provide an equation that lists out the differentcomponents of GDP and also explain what these different components include.The income approach of calculating GDP adds all incomes, such as farmer’s income, wages,corpor…

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