TOPIC 2: CIRCULAR FLOW ACTIVITY 1 Choose the correct answer by writing down the correct letter in your answer book. E.g. 1. E MULTIPLE CHOICE 1.1 The factors of production in a circular flow are owned by... a) Labour b) Business c) Households (1) d) Foreign 1.2 Subsidies are provided by ... to other participants. a) Labour b) Govemment c) Households (1) d) Business 1.3 The market for short-term loans and savings is known as ... market. a) Money b) Capital c) Factor d) Goods (1) 1.4 The market where goods and services are traded is known as ... a) Factor market b) Money market c) Product market d) Capital market (1) 1.5 An economy that has no foreign sector is known as a) Open economy b) Closed economy c) Mixed economy d) Capital economy (1)

In the circular flow model, the economy is depicted as a delicate dance between households and businesses. Households provide factors of production—like land, labor, and capital—while businesses offer goods and services in return. It's a fantastic system that keeps the economy spinning, showcasing the interdependence of different sectors. Think of it like a lively marketplace where everyone plays a role in keeping the trade thriving! Understanding the circular flow isn't just an academic exercise; it has real-world applications! For instance, when analyzing economic policies, governments need to grasp how taxes, subsidies, and public spending affect both households and businesses. The health of an economy can often be gauged by examining these flows, which impact everything from consumer behavior to job creation. So, whether you're an aspiring economist or just curious, the circular flow model gives valuable insights into how economies operate!