1. Economic modelsThe following diagram presents a circular-flow model of a simple economy. The outer set of arrows (shown in green) shows the flow of dollars, and theinner set of arrows (shown in red) shows the corresponding flow of inputs and outputs.Markets forGoods and ServicesFirmsHouseholdsMarkets forFactors of Production Which of the following is true regarding this economic model?Because it does not take into account the role of government, the circular-flow diagram is useless for the purposes of modeling howdollars and resources move throughout an economy.Because, in reality, the economy is very large, the simplicity of the circular-flow diagram makes it useless for the purposes of modelinghow dollars and resources move throughout an economy.Because it does not take into account international trade, the circular-flow diagram is useless for the purposes of modeling how dollarsand resources move throughout an economy.While simple, the circular-flow diagram can still be useful for the purposes of modeling how dollars and resources move throughout aneconomy.

In this diagram of circular flow there are two flows depicted. The monetary flow is depicted in…

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Which of the following is true regarding this economic model?

Brief Principles of Macroeconomics (MindTap Course List)

8th Edition

ISBN:9781337091985

Author:N. Gregory Mankiw

Publisher:N. Gregory Mankiw

Chapter1: Ten Principles Of Economics

Section: Chapter Questions

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Question

1. Economic models
The following diagram presents a circular-flow model of a simple economy. The outer set of arrows (shown in green) shows the flow of dollars, and the
inner set of arrows (shown in red) shows the corresponding flow of inputs and outputs.
Markets for
Goods and Services
Firms
Households
Markets for
Factors of Production

Which of the following is true regarding this economic model?
Because it does not take into account the role of government, the circular-flow diagram is useless for the purposes of modeling how
dollars and resources move throughout an economy.
Because, in reality, the economy is very large, the simplicity of the circular-flow diagram makes it useless for the purposes of modeling
how dollars and resources move throughout an economy.
Because it does not take into account international trade, the circular-flow diagram is useless for the purposes of modeling how dollars
and resources move throughout an economy.
While simple, the circular-flow diagram can still be useful for the purposes of modeling how dollars and resources move throughout an
economy.

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