Question

18. If the government Increases taxes on households, how would it impact the Circular Flow Model?

a. It would lead to higher household savings.
b. It would decrease household consumption.
FIFFERE
c. It would have no impact on the model.
d. It would reduce the amount of money in the economy.

Answer 1

Increasing taxes on households would lead to a decrease in household consumption in the Circular Flow Model, reducing the amount of money in the economy.

Step-by-step explanation:

Increasing taxes on households would lead to a decrease in household consumption in the Circular Flow Model. When taxes are increased, households have less disposable income, which in turn reduces their spending on goods and services. This decrease in household consumption would affect the flow of money in the economy and reduce the amount of money available for businesses.

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