The Circular Flow Model Illustrates the Crucially Important Idea of Macroeconomics

question 11

Multiple Choice

The circular flow model illustrates the crucially important idea of macroeconomics, which is that:

• A) every expenditure of someone in the economy is exactly equal to the income of another.
• B) only two markets exist in every economy-input and output.
• C) income is lower when there is more spending on goods and services.
• D) the flow of two things in the economy-"stuff" and "money"-travel in the same direction.

---

Definitions:

Product Costs

Expenses directly associated with the creation of a product, including direct materials, direct labor, and manufacturing overhead.

Period Costs

Expenses that are not directly tied to production activity and are expensed in the period in which they occur.

Prepaids Insurance

Expenses paid in advance for insurance coverage, recognized as assets until the coverage period lapses.

Fixed Manufacturing

Costs that do not vary with the volume of production, including rent, salaries of permanent staff, and equipment depreciation.