Question

Which of the following is an example of spending on goods and services in the circular flow model?

1) Consumers purchasing groceries from a supermarket
2) A company investing in new machinery
3) A government paying salaries to its employees
4) A bank providing a loan to a business

Answer 1

In the circular flow model, consumers purchasing groceries from a supermarket is an example of spending on goods and services.

Step-by-step explanation:

In the circular flow model, an example of spending on goods and services would be consumers purchasing groceries from a supermarket. This is because the circular flow model demonstrates the exchanges of money for goods and services between households and firms. Households receive goods and services from firms and make payments in return, which is perfectly illustrated by the act of buying groceries. Investments in machinery or other capital by companies, government payroll, and bank loans are part of different flows in the economy and are not direct examples of spending on goods and services by households.