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⚫ · The circular flow model helps explain how income is created and distributed
among different sectors of the economy.
⚫ · · It shows the relationship between production and spending, and how
households and firms interact through markets.
⚫ · · The model helps in understanding spending behavior and how money moves
from households to firms and back again.
⚫ · · It explains the role of the government in the economy through taxation,
government spending, and public services.
⚫ · · The circular flow model also shows the role of the foreign sector through
exports and imports and how international trade affects the economy.
· · By presenting economic relationships in a simple and organized way, the circular
flow model makes it easier to understand how the whole economy works and how
changes in one sector affect other sectors.
Multiple Choice Questions
1- The circular flow model mainly explains the movement of:
A) Goods only B) Services only C) Income and spending D) Prices
2. Households earn income mainly by:
A) Buying goods B) Saving money C) Providing factors D) Importing goods
3. Firms depend on households for:
A) Taxes B) Technology C) Factors of production D) Exports
4. The product market involves:
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