1.  The answer to what gets produced is subdivided into four economic categories of goods and services:
- Consumer;
- Government;
- Business; and
- For Export.

2.  The answer to how goods and services are produced involves use of resources:
- Land;
- Labor;
- Capital; and
- Entrepreneurial ability.

3.  The answer to for whom goods and services are produced is that they go to those who can pay for them:
- Personal distribution of income suggest who can and who cannot afford to buy;
- Functional distribution of income suggest how much is earned by each of the owners of the productive kinds of resources, that is functional income tells you how much resource-owners receive, laborers receive, capital earns, and entrepreneurship is rewarded.

4.  The circular flow model links households, businesses, resource markets, and product markets together.  The value of spending equals the value of incomes earned by the factors of production, if the economy is neither expanding nor contracting.

 2.1   Describe what, how, and for whom goods are produced in the United States.

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 2.2   Use the circular flow model to provide a picture of how households, firms, and government interact.

The circular flow model is an invention from Simon Kuznets, a Russian-born immigrant to the United States.  Kuznets invented the procedures with which most modern economies collect their economic information.  He went on to become a Nobel prize winner and a faculty member of Harvard University. 

 2.1   Describe what, how, and for whom goods and services are produced in the United States.

A.  What:  The American economy produces that which is "in demand," that is to say, that which consumers, businesses, and governments are willing and able to spend money.  Consumption goods and services represent 58% of total production; investment goods and services represent 17%.

B.  How:  The American economy strives to produce things in a way that maximizes profit for the producer.  Goods and services are produced by using the four factors of production - (i) land, (ii) labor, (iii) capital, and (iv) entrepreneurship.

C.  For whom:  Good and services go to those who have the income and the willingness to spend it.  The incomes people earn - rent for land, wages for labor, interest for capital, and profit for entrepreneurship - determine who gets what is produced.

 2.2   Use the circular flow model to provide a picture of how households, firms, and government interact.

A.  The circular flow model shows the flows of factors and goods and the corresponding flows of incomes and expenditures.

B.  Government in the circular flow receives taxes, makes transfers, and buys goods and services.

Take the optional post-study bonus point quizzes on The U.S. and Global Economies on Saturday following Module 2.

Take the optional pre-study bonus point quizzes on The Economic Problem on Sunday preceding Module 3.