What does the term 'Circular Flow Model' most accurately describe in the context of global economics?
A. Goods and services sold to other countries
B. An individual's ability to invest in stocks
C. A country's total trade balance
D. A sudden fall in a nation's currency value
Answer (1)
The correct answer is letter A.The Circular Flow Model is a visual representation of how money, resources, and products move in an economy. It shows the interaction between households, businesses (firms), the government, and the foreign sector.How the Circular Flow Model WorksHouseholds offer labor, land, and capital to firms in exchange for wages, rent, and profits. This happens in the factor market.Households use their income to buy goods and services from firms. This happens in the product market.Firms earn revenue from sales and use it to pay for resources and produce more goods.The government collects taxes and provides public goods and services like roads, schools, and hospitals.The foreign sector is involved through imports and exports.This model helps us understand how the economy moves in a cycle. For example, if people lose jobs (no income), they stop buying goods, businesses lose income, and the economy slows down. But if people earn more, they spend more, businesses grow, and the economy improves.
