Answer to Question #316327 in Microeconomics for Nobuhle Ledima

Question

Using a circular flow diagram, illustrate the flow of income and spending for a model including the foreign sector. Clearly describe and indicate leakages the direction of the flies.

Answer 1

• The circular flow model demonstrates how money moves from producers to households and back again in an endless loop.
• In an economy, money moves from producers to workers as wages and then back from workers to producers as workers spend money on products and services