Question

a)Discuss broadly of how the circular flow of economic activity works to resolve the economic problem( What to produce? How to produce? and for whom to produce?).
b)Discuss broadly the effects of any 2 goals of macroeconomics on agricultural household of a country.  
c)Identify the key factor that can cause cost-push inflation and illustrate the situation with a graph.

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Answer 1

A) The circular flow of economic activity :-

The circular flow of economic activity is a model displaying the basic economic relationships within a market economy. Goods and services flow through the economy in one direction while money flows in the other direction.

The main factors productions are land, labor, capital and enterpreneurship.

Basic economic problems are ;

a) What to produce?

b) How to produce?

c) For whom to produce?

The basic economic problems are solved by the circular flow of economic activity.

B) The effects of any two goals of macroeconomics on agricultural household of a country.

There are three main macroeconomic goals full employment, stability and economic growth. Each goal has its own impact on economy. Stability and economic growth are two goals which have major effects on agricultural household of a country. Stability creates longterm consumption and production plan and economic growth satisfy their needs and their living standards also rise.

C) The key factor that can cause cost-push inflation

Cost-Push inflation happens when overall prices increases or inflation create due to increases in the cost of wages and raw materials.

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