Short answer. Paragraph form: Describe the government's flows in the circular flow model of the economy....

Short answer. Paragraph form:

Describe the government's flows in the circular flow model of the economy. Draw a circular flow diagram and connect all the flows explaining each.

Expert Solution

Circular flow shows that how does an economy function. It shows movements of money, goods and services across the participants of economic activities. Household (Consumers) and Firms (Producers) and Government are important participants.

Following is chart:

Household sector : Household sector provides services to firms and gets back rewards in form of money. Hence, Money flows from firms to households. Further, They make purchase of goods from firms, here money flows from household sector to firms.

Business firms: These firms get services of household sector and pay wages. Further, these firms get money by selling goods to household and government sectors.

Government sector: Government imposes taxes on firms and households; hence money flows from firms and households to government. Government makes transfer payments to households and provides subsidies to business houses. Here, Money flows from government sector to households and firms.

Rahul Sunny answered 2 years ago

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