In the Circular Flow Model, Consumption Expenditures Are the Spending

question 339

Multiple Choice

In the circular flow model, consumption expenditures are the spending by

• A) government in financial markets.
• B) households in the goods market.
• C) firms for factors of production.
• D) the rest of the world in the goods market.

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Definitions:

Time Value of Money

The concept that money available now is worth more than the same amount in the future due to its potential earning capacity.

Compound Interest

Interest calculated on the initial principal, which also includes all of the accumulated interest from previous periods on a deposit or loan.

Payback Period Method

A capital budgeting method that calculates the time required for an investment to generate cash flows to recover its initial cost.

Net Present Value

A method used in capital budgeting to evaluate the profitability of an investment by calculating the difference between the present value of cash inflows and outflows over a period of time.