Podcast
Questions and Answers
In the circular flow diagram, what role do households play in the factor market?
In the circular flow diagram, what role do households play in the factor market?
- They receive investment from firms.
- They sell resources such as labor. (correct)
- They purchase goods and services.
- They provide government spending.
Which of the following is an example of an injection into the circular flow of income?
Which of the following is an example of an injection into the circular flow of income?
- Government spending (correct)
- Imports
- Savings
- Taxes
What primarily flows from firms to households in the product market?
What primarily flows from firms to households in the product market?
- Savings and investments
- Goods and services (correct)
- Rent, wages, interest, and profit
- Factors of production
Which of the following is considered a leakage from the circular flow of income?
Which of the following is considered a leakage from the circular flow of income?
In the circular flow diagram, what do households provide to firms in the factor market?
In the circular flow diagram, what do households provide to firms in the factor market?
How does the circular flow diagram primarily illustrate the economy?
How does the circular flow diagram primarily illustrate the economy?
Which market involves businesses selling goods and services to consumers?
Which market involves businesses selling goods and services to consumers?
What is represented by the inner flow in the circular flow diagram?
What is represented by the inner flow in the circular flow diagram?
According to the circular flow model, what do firms primarily receive from households in the product market?
According to the circular flow model, what do firms primarily receive from households in the product market?
Assuming a simplified circular flow model, if firms increase their investment spending, what immediate effect would this have?
Assuming a simplified circular flow model, if firms increase their investment spending, what immediate effect would this have?
If consumers decide to save a larger portion of their income, what is the likely short-term effect on the circular flow?
If consumers decide to save a larger portion of their income, what is the likely short-term effect on the circular flow?
Which of the following best describes the outer flow in the circular flow diagram?
Which of the following best describes the outer flow in the circular flow diagram?
What is one of the basic assumptions considered in the circular flow diagram?
What is one of the basic assumptions considered in the circular flow diagram?
How do exports affect the circular flow of income?
How do exports affect the circular flow of income?
Which scenario implies an increase in the inner flow from households to firms?
Which scenario implies an increase in the inner flow from households to firms?
What happens to the circular flow when total leakages are greater than total injections?
What happens to the circular flow when total leakages are greater than total injections?
In a scenario where government increases direct taxes, how does this primarily affect the circular flow?
In a scenario where government increases direct taxes, how does this primarily affect the circular flow?
If a country significantly increases its imports without a corresponding increase in exports, what is the immediate impact on its circular flow?
If a country significantly increases its imports without a corresponding increase in exports, what is the immediate impact on its circular flow?
Which of the following scenarios would most likely lead to an expansion of the circular flow?
Which of the following scenarios would most likely lead to an expansion of the circular flow?
How does entrepreneurship, as a factor of production, primarily contribute to the circular flow?
How does entrepreneurship, as a factor of production, primarily contribute to the circular flow?
Flashcards
Circular Flow Diagram
Circular Flow Diagram
A model showing how money, goods, and services move between households and firms in an economy.
Product Market
Product Market
Where businesses sell goods and services, and consumers buy them.
Factor Market
Factor Market
Where households sell resources (land, labor, capital, entrepreneurship) to firms.
Inner Flow
Inner Flow
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Outer Flow
Outer Flow
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Injections
Injections
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Leakages
Leakages
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Examples of Injections
Examples of Injections
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Examples of Leakages
Examples of Leakages
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Study Notes
- The Circular Flow Diagram illustrates the movement of money, goods, and services in an economy between households and firms
- The national economy connects production, consumption, employment, and income
Assumptions
- Households own all factors of production
- Households save in banks
- Only direct taxation exists
- All firm output is sold
Key Entities
- Households own factors of production (land, labor, capital, and entrepreneurship) and provide them to firms, receiving income (rent, wages, interest, and profit) in return
Markets
- Product Market: Businesses sell goods and services, and consumers buy them
- Factor Market: Consumers sell resources, and businesses buy them
Flows
- Inner flow (physical): Represents the physical movement of goods, services, and resources
- Outer flow (monetary): Shows the movement of money, where firms pay households for resources, and households pay firms for goods
Injections
- Represent sources of additional spending that enter the flow
- Examples include investment, government spending, and exports
Leakages
- Refer to withdrawals from the flow
- Examples include savings, taxes, and imports
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