Western Governors University (WGU) ECON2000 D089 Principles of Economics Practice Exam

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What does the circular flow model illustrate?

The relationship between inflation and unemployment

The flow of money and goods in the economy

The circular flow model illustrates the flow of money and goods in the economy by depicting how different sectors interact within the marketplace. It outlines the relationships between households and businesses, showing how households provide labor and consume goods while businesses supply goods and services and pay wages. This model effectively represents the continuous movement of money as households spend income on goods and services, which in return generates revenue for businesses. Consequently, the earnings businesses make allow them to pay wages to households, creating a cycle of economic activity that highlights the interdependence of different economic agents. By visualizing these interactions, the circular flow model provides valuable insights into how economies function and maintain equilibrium between production and consumption.

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The impact of government policy on markets

The competition between businesses

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