Asked by I'marii Willss on May 05, 2024
Verified
Statement I.The circular flow model oversimplifies the exchanges in our economy.
Statement II.Most of the money received by households in the form of wages,rent,interest,and profits flows back to business firms in the form of consumer expenditures.
A) Statement I is true and statement II is false.
B) Statement II is true and statement I is false.
C) Both statements are true.
D) Both statements are false.
Circular Flow Model
An economic model that depicts the movement of goods, services, and money between households and businesses in an economy.
Consumer Expenditures
The total amount spent by consumers in an economy on goods and services.
- Familiarize yourself with the circular flow framework and the definition of public goods in an economic setting.
Verified Answer
VS
Vanessa SaldivarMay 08, 2024
Final Answer :
C
Explanation :
Statement I is true as the circular flow model does not take into account external factors such as government intervention, trade with other countries, and the role of financial institutions. However, Statement II is also true as most of the money earned by households is spent on goods and services produced by businesses, which then allows the businesses to earn a profit and continue providing employment opportunities. Therefore, both statements are true.
Learning Objectives
- Familiarize yourself with the circular flow framework and the definition of public goods in an economic setting.