Question

14.


Directions

Choose the correct answer for each row.

Determine which of the following examples align with the circular flow model of economics.

Select one correct answer in each row.

Aligned

NOT aligned

An individual purchases a rare antique from an auction house for personal use without intending to sell it. The auction house sells the antique, receiving revenue from the sale—the antique remains at the new owner's home for their own enjoyment.

Aligned Radio Button
NOT aligned Radio Button
The townspeople own the farmland and work at a nearby farm that sells its crops to the stores in town. The farm pays the townspeople rent for the use of the land and wages for working on the farm. The townspeople use the revenue to purchase goods from local stores.

Aligned Radio Button
NOT aligned Radio Button
A comic book store sells a rare comic to a collector. The comic is very expensive and highly valued by the collector. The collector takes the comic home, places it securely in a locked safe, and does not remove it for many years.

Aligned Radio Button
NOT aligned Radio Button
The government collects taxes from households and firms and provides public goods and services. The government's spending and taxation influence the circular flow by affecting the income and spending patterns of households and firms.

Aligned Radio Button
NOT aligned Radio Button
Mirabel works part-time at a local discount store. She recently opened a Roth IRA with an online brokerage. She buys stocks in some of her favorite companies and receives quarterly dividends.

Aligned Radio Button
NOT aligned Radio Button
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Answer 1

An individual purchases a rare antique from an auction house for personal use without intending to sell it.
NOT aligned — sale of a used good (asset transfer) is not part of the circular-flow production/sales of current goods and services.

The townspeople own the farmland and work at a nearby farm that sells its crops to the stores in town. The farm pays the townspeople rent for the use of the land and wages for working on the farm. The townspeople use the revenue to purchase goods from local stores.
Aligned — classic circular-flow: households supply factors (land, labor) to firms, receive income, and buy goods from firms.

A comic book store sells a rare comic to a collector. The comic is very expensive and highly valued by the collector. The collector takes the comic home, places it securely in a locked safe, and does not remove it for many years.
NOT aligned — sale of a previously produced/used good is an asset transfer and not part of current production flows in the circular-flow model.

The government collects taxes from households and firms and provides public goods and services. The government's spending and taxation influence the circular flow by affecting the income and spending patterns of households and firms.
Aligned — government is an explicit sector in the circular-flow model, affecting income and spending through taxes and public purchases.

Mirabel works part-time at a local discount store. She recently opened a Roth IRA with an online brokerage. She buys stocks in some of her favorite companies and receives quarterly dividends.
Aligned — financial markets and dividend payments are part of the circular flow: households save/invest and receive income (dividends) from firms.