State the assumptions for the circular flow of national income in a closed economy.
Understand the Problem
The question is examining the circular flow of national income in a closed economy, focusing on the roles of firms and families in production and consumption. It emphasizes the exchange of goods, services, and payments between these entities.
Answer
Two sectors (households and firms), no government intervention, no foreign trade, households spend all income, firms distribute all income.
The final answer is: In a closed economy's circular flow of national income, assumptions include: there are only two sectors (households and firms), no government intervention, no foreign trade, households spend all income on goods/services, and firms distribute all income as wages, rent, and profit.
Answer for screen readers
The final answer is: In a closed economy's circular flow of national income, assumptions include: there are only two sectors (households and firms), no government intervention, no foreign trade, households spend all income on goods/services, and firms distribute all income as wages, rent, and profit.
More Information
In a closed economy, the circular flow model simplifies analysis by focusing on internal economic activities without external influences. This model helps visualize the flow of resources and money between households and firms.
Tips
Confusing closed and open economies—a closed economy doesn't engage in foreign trade.
Sources
- List down four assumptions of the circular flow of income in a two ... - easyelimu.com
- Circular flow of income - Wikipedia - en.wikipedia.org
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