Question

Thinking about the circular flow of income and the data you just analyzed, compose one well-written paragraph that

shows how you can apply the circular flow of income to the questions you just answered. In your writing, be sure to use
proper economic terminology, such as the labels in the circular flow model e.

Answer 1

As consumer spending increased, less savings were placed in the financial sector. This resulted in reduced business investment. The government also spent less, meaning it injected less money into the economy. There was a trade deficit because imports were greater than exports. This means there was more leakage through imports than there was money injected through exports.

Step-by-step explanation:

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Answer 2

Circular flow of income is a theory that states that economy is a system of dependencies, flows of goods, services, factors of production and payments between all participants of economic life. It shows how the exchange process works, in which the government, enterprises, and households participate.

Households are fed by streams of payments in the form of wages, pensions and other similar benefits. Then they dispose of their income in such a way that they return some of the streams in the form of taxes, some leave as savings, in return for which they receive services and goods of public interest. The remaining stream of payments after these operations is passed back to enterprises (as a result of the purchase of goods and services).

Businesses, like households, spend part of their income on taxes and savings, receiving in return government investment from the state. Businesses obtain streams of labor and production services from households and can therefore produce goods.