How do firms and households interact within the context of the circular flow model?
What will be an ideal response?
Households are the owners of the factors of production. Firms purchase these factors in the factor market. They use these factors to produce goods and services which are sold to households in the goods market. Households are paid for the services of the factors of production and use this income to pay for the goods and services.
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The term investment refers, in general, to
A) any action today that has costs today. B) any action today that has costs today but provides expected benefits in the future. C) only large projects, such as building a new factory, undertaken by private firms. D) only the creation of capital goods undertaken by private firms or the government.
A business fluctuation when the pace of economic activity is slowing down is called
A) a reduction. B) a contraction. C) a depression. D) a slowdown.