ACTIVITYT 7.1 In your opinion, what would happen if government were to increase household tixx substandal: How would that impact consumer sperding? (4) 72 Name three ways in which goods and services fow through the economy. (3) \( \qquad \) \( \qquad \) \( \qquad \)

Let's break down the questions one by one. ### Question 7.1 **What would happen if the government were to increase household taxes substantially? How would that impact consumer spending?** 1. **Reduction in Disposable Income**: When household taxes increase, families have less disposable income available after taxes. This means they have less money to spend on goods and services. 2. **Decrease in Consumer Spending**: With less disposable income, consumers are likely to cut back on non-essential purchases. This can lead to a decrease in overall consumer spending in the economy. 3. **Impact on Businesses**: As consumer spending decreases, businesses may experience lower sales, which can lead to reduced profits. This may result in businesses cutting back on production, laying off employees, or even closing down. 4. **Economic Slowdown**: A significant reduction in consumer spending can lead to an economic slowdown. Lower demand for goods and services can result in slower economic growth, potentially leading to a recession. ### Question 7.2 **Name three ways in which goods and services flow through the economy.** 1. **Household to Business**: Households purchase goods and services from businesses, providing them with revenue. 2. **Business to Household**: Businesses provide wages and salaries to households in exchange for labor, which is essential for production. 3. **Government to Household and Business**: The government provides public goods and services (like education, healthcare, and infrastructure) funded by taxes collected from households and businesses. These interactions illustrate the circular flow of income and expenditure in an economy.