A Circular-Flow Diagram Is a Model That

question 43

Multiple Choice

A circular-flow diagram is a model that

• A)helps to explain how participants in the economy interact with one another.
• B)helps to explain how the economy is organized.
• C)incorporates all aspects of the real economy.
• D)Both (a)and (b)are correct.

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Definitions:

Equipment

Tangible assets used in the operations of a business, often having a useful life longer than one year.

Accumulated Depreciation

The aggregate depreciation charged against a tangible asset over its useful life to represent wear and tear.

Income Summary

An account used in the closing process that summarizes the revenues and expenses for a fiscal period, determining the net income or loss.

Owner's Capital

The total value of equity that a business owner has invested in their company, which may increase through profits or additional contributions.