Application 13A pg. 70 - 71

Question 1

Describe the government’s role in a circular flow model of market economy?

Answer 1

> located in center of model
affects economy through collection of taxes from both private households and private businesses
purchases items from private businesses and make expenditures that benefit private households

Question 2

Describe the financial institutions’ roles in a circular flow model of market economy?

Answer 2

> private households and private businesses, both domestic and international, place their savings in various financial institutions
lend money to households and invest in private businesses, both domestically and internationally

Question 3

Describe the international market’s role in a circular flow model of a market economy?

Answer 3

> much of nation’s wealth can come from trade with other countries
private businesses export materials to international businesses and individuals, and in return, the American economy receives many imports from international businesses

Question 4

What does the circular flow model of a market economy illustrate?

Answer 4

> the interdependence of all five entities that allows market economy to function smoothly
global connection of world economies