Revision-Circular Flow Model and GDP

Megan and Anis are studying the economy and come across the concept of the circular flow model. They learn about various components that make up this model. Which of the following is a component of the circular flow model?

• Imports

• Households

• Inflation

• Interest Rates

Answer explanation

Households are a key component of the circular flow model, representing consumers who provide factors of production and receive income in return. Imports, inflation, and interest rates are not direct components of this model.

Megan and Snow are running a small bakery. In the circular flow model, what do they provide to firms?

• Goods and services

• Taxes

• Factors of production

• Subsidies

Answer explanation

In the circular flow model, households provide factors of production, such as labor and capital, to firms. This is essential for firms to produce goods and services, making 'factors of production' the correct answer.

In a school project about the economy, Noah and Tristan are exploring different roles in the circular flow model. What role does the government play in this model?

• Only a consumer

• Only a producer

• Both a consumer and a producer

• Neither a consumer nor a producer

Answer explanation

In the circular flow model, the government acts as both a consumer, purchasing goods and services, and a producer, providing public services and regulating the economy. Thus, it plays a dual role.

Megan and Tristan are studying different methods of calculating national income for their economics class. Which of the following methods should they focus on?

• Expenditure method

• Import method

• Inflation method

• Taxation method

Answer explanation

The expenditure method calculates national income by summing all expenditures made in an economy, including consumption, investment, government spending, and net exports. The other methods listed are not standard approaches for this calculation.

During a class discussion on economics, Irfan asked, "In the context of national income accounting, what does GDP stand for?"

• Gross Domestic Product

• General Domestic Product

• Gross Development Product

• General Development Product

Answer explanation

GDP stands for Gross Domestic Product, which measures the total economic output of a country. The other options do not accurately represent this key economic indicator.

In a classroom discussion, Tangguh and Alisha are talking about the economy. Tangguh mentions that certain activities can be considered a leakage in the circular flow model. Which of the following activities is he referring to?

• Investment

• Savings

• Government spending

• Exports

Answer explanation

Savings is considered a leakage in the circular flow model because it represents money that is not being spent on goods and services, thus reducing the flow of income in the economy.

Irfan and Alisha are discussing the circular flow model in their economics class. Irfan asks, "Which of the following is an injection in the circular flow model?"

• Taxes

• Imports

• Exports

• Savings

Answer explanation

In the circular flow model, injections are additions to the economy. Exports represent goods sold to other countries, bringing money into the economy, while taxes, imports, and savings are considered leakages.

In a school project, Irfan and Snow are tasked with creating a model of an economy. What is the primary function of firms in their circular flow model?

• To consume goods and services

• To provide labor

• To produce goods and services

• To collect taxes

Answer explanation

The primary function of firms in the circular flow model is to produce goods and services. They create products that households consume, driving the economy and fulfilling market demands.

In a classroom discussion, Tristan and Alisha are learning about economic models. Which of the following is NOT a component of the circular flow model?

• Households

• Firms

• Banks

• Inflation

Answer explanation

Inflation is not a component of the circular flow model, which includes households, firms, and banks. The model illustrates the flow of money and goods in an economy, while inflation refers to the rate of price increase.

Anis and Danial are studying national income accounting. They are discussing which method involves summing up all incomes earned by factors of production. Can you help them identify the correct method?

• Expenditure method

• Income method

• Output method

• Import method

Answer explanation

The Income method in national income accounting sums all incomes earned by factors of production, such as wages, rents, interest, and profits, making it the correct choice for this question.