1. Answer the following:
a) Draw a diagram of the economy as an economist organizes it, showing only the expenditure flows. This diagram should identify the major decision-making sectors in the economy, and how they interact with the various other sectors and markets of the economy (i.e. draw the large circular flow diagram!)
b) From this diagram, identify the four important markets macroeconomists identify in the economy. (Hint - where are the factor markets (markets for labor and capital), final goods and services markets, the trade and financial markets shown on the diagram – what portion of the circular flow diagram?)
c) How does this diagram tell us national income, production and expenditure will be related? Explain why this is true.
