One of the Key Concepts Involved in the Circular Flow

question 304

Multiple Choice

One of the key concepts involved in the circular flow diagram is that

• A) households and businesses are in conflict with each other.
• B) the national economy is similar to a zero-sum game.
• C) one person's spending is another person's income.
• D) the sum of the resource and product markets must equal household income.

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Definitions:

Effective Interest Method

An accounting practice for amortizing a bond discount or premium on the basis of effective interest rate, rather than the straightforward straight-line method.

Discount

A reduction applied to the price of goods or services, or the difference between the nominal value of a financial instrument and its lower market price.

Bond Liability

A financial obligation of a company that arises when it issues bonds to raise funds, representing its need to repay the principal and interest to bondholders.

Interest Expense

The cost incurred by an entity for borrowed funds, typically reported on the income statement.