Question

The economy's income and expenditure 

The following diagram presents a circular-flow model of a simple economy. The outer set of arrows (shown in green) shows the flow of dollars, and the inner set of arrows (shown in red) shows the corresponding flow of inputs and outputs.

 Based on this model, households earn income when ___firms____   purchase labor and capital in markets for factors of production.

 Suppose Cho earns $625 per week working as a jewelry appraiser for Classy's Jewelry Store. She uses $8 to order a mojito cocktail at Little Havana.

 Little Havana pays Bob $200 per week to wait tables. Bob uses $200 to purchase a necklace from Classy's Jewelry Store.

 Identify whether each of the following events in this scenario occurs in the market for factors of production or the market for goods and services.

 Which of the elements of this scenario represent a flow from a firm to a household? This could be a flow of dollars, inputs, or outputs. Check all that apply.

•  The $200 Bob spends to purchase a necklace from Classy's Jewelry Store

•  The mojito Cho receives

•  Cho's labor

 True or False: For the economy as a whole, expenditures must equal income.

•  True

•  False

Answer 1