Question

In reference to our discussion of the circular flow of goods and services, answer the following questions

What do the two circles or rings represent?



B. What is the supply, demand, and price of money?



C. What functions does government perform?



D. Name the three markets.



E. Name the four segments of the economy.



F. What policies influence the flows in the model?



G. What happens to household/consumer income?



H. What are the flows to the international piece of the economy?

Answer 1

Let me answer the questions in order.

A) The two circles represents "Goods and Services" and "Factors of Production".

B) Supply: It refers to the quantity of goods that a supplier is willing to sell at a given price at a particular time.

   Demand: It refers to the willingness of consumer to buy a certain product at a given price at a particular time.

   Price of Money: It refers to the amount of money that is required to acquire a product.

C) Functions of Government: The main function of government is to collect tax from business sector and household sector. The government also purchases the services of the households and makes transfer payments in the form of old age pensions, sickness benefit, unemployment relief etc., and also provide certain social services like education, housing, health, parks, water, and other facilities.

D) The three markets are factor market, product market and capital market.

E) The four segments of the economy are Business sector, Household sector, Government sector and Foreign sector.

F) Injections and Leakages influences the flow in the model.

G) Households are considered as consumers. They can be individuals or group of consumers taking a joint decision regarding consumption. They can also be families. They are the owners of factors of production—land, labour, capital and entrepreneurial ability. They sell the services of these factors and receives income in return in the form of rent, wages, interest and profit respectively.

H) Payment for imports and export transfer payments are the main flows of international piece. However foreign investments are also given to the government