ECONOMICS (CBSE/UGC NET)

ECONOMICS

ECONOMIC SYSTEMS

Question [CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
What is one way a government withdraws money from the circular flow of a market?
A
Payroll
B
Purchasing Equipment
C
They never do
D
Taxes
Explanation: 

Detailed explanation-1: -The examples of withdrawal (which is a variable that leaks out from the circular flow of income) are taxes, imports and savings.

Detailed explanation-2: -Taxes (T) imposed by the government reduce the flow of income. Money paid to foreign companies for imports (M) also constitutes a leakage. Savings (S) by businesses that otherwise would have been put to use are a decrease in the circular flow of an economy’s income.

Detailed explanation-3: -Taxes are a leakage or withdrawal from the flow of income and spending in the economy.

Detailed explanation-4: -In a three-sector circular flow diagram, government is a buyer (demand) in both the product and resource markets. Government provides public goods, public services, and transfer payments to households and firms in exchange for tax payments.

There is 1 question to complete.