The Circular Flow Diagram Shows That

question 256

Multiple Choice

The circular flow diagram shows that

• A)the value of total income is equal to the total value of expenditures on final goods and services.
• B)firms pay households wages,and households receive transfer payments from firms.
• C)households spend all their income on goods and services.
• D)GDP will be less than the total value of expenditures on final goods and services in the economy.

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Definitions:

Corrective Tax

A tax designed to encourage or discourage certain behaviors by including the cost of externalities, thereby correcting an inefficient market outcome.

Tax Revenue

The income that is gained by governments through taxation, serving as a primary source of financing government expenditures.

Tradable Pollution Permits

An economic strategy aimed at reducing pollution through financial motivations designed to cut down on pollutant emissions.

Corrective Taxes

Taxes imposed to correct the effects of a market failure, often used to discourage harmful behaviors and internalize externalities.