Explain the concept of the circular flow.
What will be an ideal response?
The circular flow refers to the interrelationships between income and output. In every exchange the seller receives exactly what the buyer pays. This also means that someone's receipt is someone else's payment. Goods and services flow in one direction and money payments in the other. The total income received by people must equal the total spending of people. Businesses provide goods and services and sell them to households, and households provide the resources used by firms in exchange for income.
You might also like to view...
Suppose the market price of corn is $5.50 per bushel. What are the three conditions that will need to be satisfied for the corn market to be in equilibrium at this price?
What will be an ideal response?
In the new Keynesian model, the ultimate effect on output of an anticipated aggregate demand shock is ________
A) less than if that event was unanticipated B) greater than if that event was unanticipated C) the same as would develop if that event had never occurred D) dependent on whether or not that event is temporary or permanent
In a perfectly competitive market, buyers are completely aware of the asking prices of sellers but sellers are unaware of the bids placed by buyers
Indicate whether the statement is true or false
What would happen to the equilibrium price and quantity of lattés if the cost to produce steamed milk, which is used to make lattés, increased, and scientists discovered that lattés cause heart attacks?
a. Both the equilibrium price and quantity would increase. b. Both the equilibrium price and quantity would decrease. c. The equilibrium price would decrease, and the effect on equilibrium quantity would be ambiguous. d. The equilibrium quantity would decrease, and the effect on equilibrium price would be ambiguous.