Which of the Following Statements About the Circular-Flow Diagram Is

question 227

Multiple Choice

Which of the following statements about the circular-flow diagram is correct?

• A)One must imagine that the economy operates without money in order to make sense of the diagram.
• B)The diagram leaves out details that are not essential for understanding the economic transactions that occur between households and firms.
• C)The government cannot be excluded as a decision maker in a circular-flow diagram.
• D)All of the above are correct.

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Definitions:

Fixed Costs

Expenses that do not change in total irrespective of the volume of goods or services produced by a company.

Break Even

The point at which total revenues equal total expenses, with no net loss or profit.

Variable Costs

Expenses that are directly tied to the rate of goods produced or services sold, such as the cost of materials and labor involved.

Fixed Costs

Costs that remain constant for a business over a period, regardless of the level of goods or services produced.