In the Circular Flow Model of an Economy with No

question 135

Multiple Choice

In the circular flow model of an economy with no government sector and no international trade, households

• A) receive income from buyers of goods and services.
• B) pay firms for the use of their factors.
• C) receive income from the sale of factors in the goods markets.
• D) receive income from producers for the use of factors in the factor markets.

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Definitions:

Net Present Value

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

Capital Budgeting

The process of evaluating and selecting long-term investments that are consistent with the firm's goal of wealth maximization.

Discount Rate

The discount rate refers to the interest rate applied in discounted cash flow analysis to calculate the present value of future cash flows.

Annual Cash Inflows

The total amount of money received by a business from its operations, investments, and financing activities over the course of a year.