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Questions and Answers
What is the circular flow of income model?
What is the circular flow of income model?
- A representation of the stock market fluctuations
- A representation of government spending and taxation
- A representation of the major exchanges of money, goods, and services between economic agents (correct)
- A representation of international trade patterns
What corresponds in value but runs in the opposite direction in the circular flow model?
What corresponds in value but runs in the opposite direction in the circular flow model?
- The flows of goods and labor exchanged
- The flows of money and services exchanged
- The flows of goods and services exchanged
- The flows of money and goods exchanged (correct)
Who developed the concept of the circular flow in the so-called Tableau économique?
Who developed the concept of the circular flow in the so-called Tableau économique?
- Richard Cantillon
- François Quesnay (correct)
- Karl Marx
- John Maynard Keynes
What does the circular flow analysis form the basis of?
What does the circular flow analysis form the basis of?
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In its most basic form, the circular flow model considers a simple economy consisting solely of which entities?
In its most basic form, the circular flow model considers a simple economy consisting solely of which entities?
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Study Notes
Circular Flow of Income Model
- The circular flow of income model is a macroeconomic concept that illustrates the flow of income and expenditures between different sectors of an economy.
Key Components
- In the circular flow model, the flow of income corresponds in value but runs in the opposite direction, indicating that one sector's expenditure is another sector's income.
Historical Background
- The concept of the circular flow was developed by François Quesnay, a French economist, in the so-called Tableau économique.
Basis of Macroeconomic Analysis
- The circular flow analysis forms the basis of modern macroeconomic analysis and national income accounting.
Simplified Economy
- In its most basic form, the circular flow model considers a simple economy consisting solely of households and firms as the two main entities.
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