Circular Flow Model in Economics

What does the circular flow model in economics represent?

• The flow of energy and resources in an ecosystem

• The flow of goods and services in one direction and money in the opposite direction between households and firms

• The circular movement of water in the environment

• The cycle of production and consumption in a closed system

According to the circular flow model, what do households provide to firms?

• Consumer expenditure

• Goods and services

• Factors for production

• Business investments

What do firms provide to households in the circular flow model?

• Wages, rent, dividends

• Taxes

• Loans and credits

• Government services

Why are both cycles of the circular flow model necessary according to the text?

• To ensure that the government can collect taxes

• To maintain a balance of trade with other countries

• To make the economy work by exchanging goods and services for money

• To allow for the accumulation of capital

What is the key takeaway from the circular flow model?

• That money is the only factor that drives the economy

• That goods and services are more important than money

• That both cycles of goods and services and money are needed to make the economy work

• That households are more important than firms in the economic cycle

What is the circular flow model in economics?

• A model that shows the flow of goods and services through a single business

• A model that shows the flow of money through the economy

• A model that shows the flow of investments in the stock market

• A model that shows the flow of resources in a closed ecosystem

What are the two sectors that the circular flow of income occurs between in the most common form of the circular flow model?

• The government sector and the foreign sector

• The household sector and the business sector

• The financial sector and the labor sector

• The resource market and the product market

What is the payment for labor called?

• Rent

• Interest

• Profit

• Wages

What is the payment for land broadly defined as natural resources called?

• Wages

• Interest

• Rent

• Profit

Which of the following is NOT one of the four factors of production?

• Labor

• Land

• Capital

• Technology