Rishi Bhagat

Ms. Martin
AP Econ – C
10/07/2020

Module 10 Questions

1. Explain why the three methods of calculating GDP produce the same estimate of
GDP.

The value added of all domestically produced final goods/services is equal to the value of
spending on all domestically produced final goods/services. The value of spending on
domestically produced final goods/services is equal to total factor income because all
spending that is channeled to firms to pay for purchases of domestically produced final goods
and services is revenue for firms. Those revenues must be paid out by firms to their factors of
production (wages, profit, interest, and rent)

2. Identify each of the sectors to which firms make sales. What are the various ways in
which households are linked with other sectors of the economy?

Firms make sales to other firms, households, the government, and the rest of the world.
Households are linked to firms through the sale of factors of production, through purchases
from firms of final goods and services, and through lending funds to firms in the financial
markets. Households are linked to the government through their payment of taxes, their
receipt of transfers, and their lending of. Finally, households are linked to the rest of the
world through their purchases of imports and transactions with foreigner in financial markets.

3. Consider Figure 10.3. Explain why it would be incorrect to calculate total value
added as $30,500, the sum of the sales price of a car and a car’s worth of steel.

This would be incorrect because you are counting steel twice – once as it was sold by
American Steel to American Motors and once as part of the car sold by American Motors.

1. C
2. E
3. A
4. B
5. A
6. B
7. A
Rishi Bhagat
Ms. Martin
AP Econ – C
10/07/2020

1. Draw a correctly labeled circular-flow diagram showing the flows of funds between the
markets for goods and services and the factor markets. Add the government to your
diagram and show how money leaks out of the economy to the government and how
money is injected back into the economy by the government.
Rishi Bhagat
Ms. Martin
AP Econ – C
10/07/2020