Questions
ECON 2002.01 AU2025 (21333) Midterm Exam 2- Requires Respondus LockDown Browser
Single choice
Which of the following statements is NOT true regarding the circular flow diagram?
Options
A.The outer arrows show the corresponding flow of money in the economy.
B.The circular flow diagram illustrates how one entity’s spending becomes another entity’s income.
C.The inner arrows show the flow of real items in the economy.
D.Household spending becomes revenue to business through the resource market.
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Step-by-Step Analysis
To analyze the circular flow diagram, I’ll evaluate each statement in turn and explain what the diagram shows for each.
Option 1: 'The outer arrows show the corresponding flow of money in the economy.' In the circular flow diagram, outer (often red) arrows typically represent the flow of money between sectors, such as spending, revenue, or payments. This statement is consistent with the standard depiction where money flows as payments from hous......Login to view full explanationLog in for full answers
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