Practice questions for the circular flow model in social studies.

📚 Topic Summary

The circular flow model is a simple way to visualize how money and resources move through an economy. It primarily shows the interaction between households and firms in two markets: the market for goods and services and the market for factors of production (like labor). Money flows in one direction, while goods, services, and resources flow in the opposite direction, creating a continuous cycle. Understanding this model is key to grasping basic economic principles.

In essence, households provide firms with labor, land, and capital in exchange for income (wages, rent, and profit). Firms then use these factors of production to produce goods and services, which they sell to households in exchange for revenue. This revenue is then used to pay for the factors of production, completing the cycle. Government and the foreign sector can be added to this model to make it more complex and realistic.

🧠 Part A: Vocabulary

Match the terms with their definitions:

1. Terms:
1. Circular Flow Model
2. Households
3. Firms
4. Factor Market
5. Product Market
2. Definitions:
1. A market where goods and services are bought and sold.
2. Economic units that consume goods and services and own factors of production.
3. A visual representation of the movement of money, goods, and services in an economy.
4. Organizations that produce goods and services.
5. A market where factors of production are bought and sold.

Match the term to the definition (e.g., 1-C, 2-B, etc.).

📝 Part B: Fill in the Blanks

Complete the paragraph using the words provided:

(Income, Resources, Firms, Households, Spending)

In the circular flow model, __________ provide __________ to __________ in exchange for __________. These __________ then use these inputs to produce goods and services, which they sell back to __________. This creates a continuous cycle of economic activity.

🌍 Part C: Critical Thinking

Explain how an increase in government __________ (e.g., infrastructure projects) would affect the circular flow model. Be sure to describe the flow of money, resources and impact on both households and firms.