Hints for Homework #5

Here are some things that should help you with the homework:

These circular flow diagrams look a bit different than the ones drawn in class. They tell the same story, they just look different. Deciphering them both will add to your understanding, not confusion.

The answers to A, B, and C on both problems are calculations. These are not just definitions. For A, use the equation GDP = C + I + G + NX. You need to know (B) to answer (A) so you might just want to solve for NX first and then do the rest of (A).

Hints on problem #1: It should be obvious what the value of GDP is by looking at the monetary flows in and out of the factor markets. Also, if you're looking for "I" or savings, well have fun looking for nothing (that was a hint). You should clearly be able to find values for C and G.

Hints on problem #2: Note how "government transfers" are not part of GDP. Those funds flow back into households and are picked up as "consumption, C". For A, tho, just be careful. Watch all the arrows flowing into "Markets for goods and services". You should be able to see C, G, I, and NX. As a check, it is very clear to see the values of "incomes", which equals GDP, by looking at the arrow flowing into "factor markets" and coming out of "factor markets".

Good luck.