Economics Flashcards: Circular-Flow Model

Questions and Answers

What does a circular-flow diagram help to explain?

How countries trade with each other

How consumers and the government interact

All aspects of the real economy

How the economy is organized (correct)

In the simple circular-flow diagram, households are the only decision makers.

False

In the markets for what do households act as sellers and firms as buyers?

Factors of production (correct)

Neither

Both goods and services and factors of production

Goods and services

What principle does the production possibilities frontier illustrate?

People face trade-offs Signup and view all the answers

Which assumption is not made when constructing a production possibilities frontier?

The quantities of the factors of production that are available are increasing over the relevant time period Signup and view all the answers

Which department provides tax policy advice to the president of the United States?

Department of the Treasury Signup and view all the answers

Which government office helps formulate spending plans and regulatory policies?

Office of Management and Budget Signup and view all the answers

Why do economists sometimes give conflicting advice?

Economists have different values and scientific judgments Signup and view all the answers

What do Tao and Miray disagree on regarding tax policy?

Normative views about tax policy Signup and view all the answers

Study Notes

Circular-Flow Diagram

A circular-flow diagram models interactions between consumers, the government, firms, and households to explain economic organization.
Households are not the only decision makers; firms also play a significant role.

Markets in Circular-Flow

In the factors of production market, households are sellers while firms are buyers.
In the goods and services market, both households and firms are involved as sellers and buyers.

Production Possibilities Frontier (PPF)

The PPF illustrates the concept that people face trade-offs in decision-making.
Key assumptions of constructing a PPF include a country producing only two goods and the absence of changes in resource availability or technology.

Tax Policy Advice

The U.S. president receives tax policy advice primarily from the Department of the Treasury.
The Office of Management and Budget assists in formulating spending plans and regulatory policies.

Conflicting Economic Advice

Economists may provide conflicting advice due to differing values and scientific judgments.
Normative views on tax policy can lead to disagreements, as seen with economists Tao and Miray who have opposing thoughts on taxation fairness based on wealth.

Description

This quiz provides key terms and definitions related to the circular-flow model in economics, focusing on how the economy is structured and the roles of different actors such as households and governments. Perfect for students looking to enhance their understanding of economic principles and interactions.