ECONOMICS
TECHNOLOGY
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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Household income will reduce, causing a reduction of purchasing power
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Increased unemployment causing the creation of new jobs
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Increased efficiency in competing businesses, causing an increase in the product market
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shift in spending to competing businesses
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Detailed explanation-1: -As already noted, taxation is a leakage from the circular flow. It tends to reduce consumption and saving of the household sector. Reduced consumption, in turn, reduces the sales and incomes of the firms. On the other hand, taxes on business firms tend to reduce their investment and production.
Detailed explanation-2: -The government offsets these leakages by making purchases from the business sector and buying services of the household sector equal to the amount of taxes. Thus total sales again equal production of firms. In this way, the circular flows of income and expenditure remain in equilibrium.
Detailed explanation-3: -How does the circular flow of income primarily affect households or firms? It provides the income that workers need to live and the revenue that businesses need to run. How does consumer spending stimulate economic growth? Consumer spending allows firms to flourish and new businesses to develop.
Detailed explanation-4: -Answer and Explanation: False, factors of production are owned by households, not firms. According to the circular flow model, the two markets are households and firms.