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Economics Unit Paper Essay

Economics Unit 2 Paper 2 June 2014 Cape Exam a) Intermediate goods- goods and services purchased for resale or further processing or manufacturing. B) l) GAP only includes the market value of final goods, not intermediate goods because the value of final goods already includes the value of all intermediate goods used in producing them. (Including the value of intermediate goods would amount to multiple counting, and that would distort the value of GAP) II) Value added is the enhancement a company gives its product or service before offering the product to customers that gives it a greater sense of value. L) a) GAP using the expenditure approach is = (C+I+G+{X-M}) Consumer expenditure+elements+Gobo Fixed consumption/spending+ (exports of goods and services-imports of goods and services) = gap l) b) (C+I+G+{X-M}) 975 II) a) The income approach is calculated by adding up wages and salaries to employees, rental income and profits then you will get IN where you will add taxes and depreciation that then you will achieve the GAP figure.

W+R+I+P GAP=IN+T+D b) 800+200+75= 1075+250= 1325 D) Saving: A significant portion of income leaked out of the circular flow is saving, which is considered any disposable income that is not used for

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current consumption expenditures. This includes income directed to traditional savings accounts, other types of financial market “investments,” and even loan payments. Taxes: The government sector extracts a portion of income (that is, forces a leakage) from the household to finance government activity. The primary taxes included are personal income taxes.

Imports: The foreign sector, which includes everyone who is not a citizen of the domestic economy, produces goods and services purchased by the domestic economy. Payment for these imports leak income, income that cannot be used for consumption expenditures on domestic production, out of the circular flow. 2) a. I) Investment is an asset or item that is purchased with the hope that it will generate income or appreciate in the future. A. II) Interest rate is the amount charged, expressed as a percentage of principal, by a lender to a borrower for the use of assets. B. ) Savings is the portion of disposable income not spent on consumption of consumer goods but accumulated or invested directly in capital equipment whereas consumption is the use of goods and services by households. Also when there is an increase in saving there is a reduction in consumption and a Economics Unit 2 Paper 2 By Aaron-Lawman consume (MAC) is the proportion of any change in income that is devoted to consumption.

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