Circular Flow of Income Model Overview

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What are the three leakages in the circular flow of income model?

Taxes, Saving, Imports

What are the three injections in the circular flow of income model?

Government spending, Investment, Exports

What are the factors of production provided by households?

Labour, Land, Capital, Entrepreneurship

What are the payments provided by firms to the factors of production?

Wages, Rent, Interest, Profits

What is the purpose of introducing three additional sectors in the circular flow model?

To account for leakages and injections beyond households and firms

In the circular flow of income model, which two sectors are involved?

Households and firms

What are the two roles households play in the circular flow of income model?

Owners of factors of production and buyers of goods/services

What are the firms in the circular flow of income model responsible for?

Producing goods/services by hiring factors of production

How do households receive income in the circular flow of income model?

By supplying factors of production to firms

What is the main purpose of the circular flow of income model?

To illustrate the interdependence between key economic decision makers

Learn about the circular flow of income model, which illustrates the interdependence between key economic decision makers in an economy. This model is crucial in macroeconomics and helps understand the flow of money and resources in a two-sector economy.

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