Study Hall: What is the Circular Flow Model?

What is the main purpose of using models in economics?

• To create fashion items for the runway

• To design rockets and test them before actual flight

• To understand human behavior and the economy

• To sell products on the open market

In the circular flow model, who provides firms with factors of production?

• Households
• Foreign investors
• Non-profit organizations

• Government

Which of the following best describes a household in economics?

• One or more people living together

• A store that sells goods

• A type of business

• A government agency

What do firms receive in exchange for the goods and services they provide?

• Land

• Money

• Labor

• Taxes

How does the government participate in the circular flow model?

• By selling products directly to consumers

• By collecting taxes and providing public services

• By only regulating businesses

• By offering loans to households

Variables are important in the study of economics - what is the best definition of an variable below?

• A variable is a type of economic model.
• A variable is a summary of economic data.
• A variable is a fixed element that does not change.
• A variable is a factor that can change and affect economic outcomes.

What is the best economic definition or explanation of a "stock variable" below?

• Represents a change in quantity over time.

• A summarized flow measured over a period of time.

• The average value calculated over multiple time periods.

• A stock variable is a quantity measured at a specific point in time.

What happens in the economy when there are significant layoffs?

• More products are sold

• The circular flow becomes disrupted

• Households receive more income

• Wages increase

Variables & Circular Flow: What happens in the circular flow model if households suddenly lose a large number of jobs?

• Businesses will produce more goods

• Government spending will automatically decrease

• Households will have less income to spend, reducing demand

• There will be no effect on the economy

Variables & Circular Flow: If businesses increase wages across the country, how might this affect the circular flow?

• Households will have more income to spend, boosting economic flow

• Taxes will disappear and government services will be cut off

• The government will stop collecting revenue

• Consumers will stop buying goods