Understanding the Circular Flow of a Simple Economy

The video tutorial explores a hypothetical economy on an island with one inhabitant. It explains how the individual sets up a firm, provides factors of production, and receives income. The tutorial illustrates the circular flow of goods and services and discusses the calculation of GDP, emphasizing the interconnectedness of income, expenditures, and revenue in an economy.

What is the primary reason the island's inhabitant decides to set up a firm?

• To build more houses on the island

• To formalize his economic activities

• To increase the population of the island

• To attract tourists to the island

Which of the following is NOT a factor of production provided by the household to the firm?

• Labor

• Land

• Technology

• Capital

How much does the firm pay annually for the rent of the building?

• $2,000

• $1,500

• $1,000

• $500

What does the firm produce for the household in this simple economy?

• Vehicles

• Food and shelter

• Luxury goods

• Electronics

What is the total annual expenditure of the household?

• $3,000

• $2,300

• $3,500

• $4,000

How much profit does the firm make annually?

• $300

• $600

• $400

• $500

What is the total income of the household, including profit from the firm?

• $3,000

• $2,500

• $4,000

• $3,500

What is the main concept illustrated by the circular flow model in this video?

• The role of technology in modern economies

• The complexity of global trade

• The interaction between households and firms

• The importance of government intervention

What would happen if you counted total revenue, expenditures, and income to measure GDP?

• You would underestimate GDP

• You would overestimate GDP

• You would triple count GDP

• You would get an accurate GDP

Which of the following is a correct way to measure GDP in this simple economy?

• Total government spending

• Total technological advancements

• Total imports and exports

• Total expenditures by the household