Question

2. Latisha works for a car dealership in town . She saves $ 500 from the $ 2600 she earns every two weeks . Yesterday she used part of her savings to make a $ 4000 down payment on a new car . Draw and label a simple circular - flow model . Place both the transactions described on your model , and describe the flow between households and firms that results .

Answer 1

In the model above the Firm is the car dealership while Latisha is the Household.

The household spends all the money on the firm and in turn pays the reward in terms of the car

Since Latisha works for the Firm she is rewarded in wages/salary