Circular Flow Model Quiz

In the circular flow model, which of the following best describes the role of households?

• They supply labor and consume goods and services.

• They produce goods and services for firms.

• They provide capital to firms but do not consume goods.

• They collect taxes and regulate the economy.

Which of the following is NOT included in the factor market of the circular flow model?

• Wages paid to workers

• Rent paid for land

• Revenue from selling goods

• Interest earned on capital

In the circular flow diagram, businesses receive revenue from which of the following?

• Wages paid to workers

• Spending by households on goods and services

• Taxes collected by the government

• Government subsidies only

Which of the following transactions occurs in the product market?

• A firm hires a worker for $15 per hour.

• A household buys a new car from a dealership.

• A business rents office space for a new location.

• A bank provides a loan to an entrepreneur.

Injections into the circular flow of income include which of the following?

• Savings and imports

• Taxes and government spending

• Investments and government spending

• Exports and household savings

Which of the following is a leakage in the circular flow of income?

• Government spending

• Business investment

• Exports

• Household savings

If firms increase investment in capital goods, how will this affect the circular flow of income in the short run?

• It will decrease national income.

• It will increase demand for labor and goods.

• It will lead to an increase in household savings.

• It will have no effect on the economy.

In an open economy, which additional factor influences the circular flow of income?

• Only government spending

• International trade (exports and imports)

• Household consumption only

• Domestic firms’ production

If leakages (savings, taxes, and imports) exceed injections (investment, government spending, and exports), what is likely to happen?

• Economic expansion

• Economic contraction

• No change in national income

• An increase in inflation

In the circular flow model, government spending primarily affects which part of the economy?

• Households only

• Firms only

• Both households and firms

• The financial sector only