Author Question: Explain the structure of the circular flow model. What will be an ideal ... (Read 88 times)

BrownTown3 · **on:** Jun 29, 2018

Explain the structure of the circular flow model.

What will be an ideal response?

Question 2

Recall the Application. Assume that immediately before the housing bubble burst, you purchased a 250,000 home and took out a 225,000 mortgage to make the purchase. When the bubble burst, the value of your home fell by 20 percent.

The value of the home is now ________ and you owe the mortgage company ________.
A) 180,000; 225,000 B) 200,000; 180,000 C) 200,000; 225,000 D) 180,000; 200,000

dyrone · **Reply #1 on:** Jun 29, 2018

Answer to Question 1

Households own the factors of production and sell the services from them to firms in the factor market. Income earned by households in the factor market is used to purchase goods and services from firms in the goods market. And the revenue the firms gain by selling the goods and services in the goods market is used to pay for the services of the factors of production they hire in the factor markets.

Answer to Question 2

C