Consider the Circular Flow of Income Model with Households and Firms

question 8

Multiple Choice

Consider the circular flow of income model with households and firms as the two sectors.If business spending (investment) were suddenly decreased due to expectations of a dismal economy in the near future,then because total purchases would suddenly be reduced:

• A)the income created would be reduced,and the value of output and the value of income would decline.
• B)the income created would be reduced,and the value of output and the value of income would no longer be equal.
• C)the income created would be reduced,and the value of output and the value of income would increase.
• D)the income created would be reduced,and the value of output and the value of income would decline until the foreign sector was introduced.
• E)the household sector would try to save more.

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