Question

1. Indicate on a graph of the circular flow model, the real or money flow in which the following items belong:

• You pay your tuition.
• The University of Texas buys some Dell computers.
• A student works at FedEx Kinko’s.
• Donald Trump rents a Manhattan building to a hotel.
• You pay your income tax.

Answer 1

You pay your tuition:

The tuition fee is considered as the money flow from households to Goods Market (Private School). This is marked as A. However, if the person is going to a government school, then fee is the money flow to the government (Public School). This is marked by A~.

The University of Texas buys some Dell computers.

University of Texas is state backed government institution. Dell computers represent the goods market. So, this purchase represents the computers flow from goods market to government. This is marked as B

A student works at FedEx Kinko’s

FedEx Kinko represents the factor markets. The student is providing factor services to FedEx. There is a flow of factor services from household to factor market. This is marked as C in diagram

Donald Trump rents a Manhattan building to a hotel

The building in question is a factor of production. Rent by the Trump represents flow of services from households to factor markets. This is marked as D

You pay your income tax

Represents money flow from household to Government.

Marked as E in diagram

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