The circular flow: how households, businesses and government connect

Grade 12 Social Studies Worksheet - Challenge Me

Circle the best answer.

1. Read this first

   Use this

   Card A, "Leaks in an open economy" (made up). Of each extra dollar of income, households pay 20 cents in taxes, save 15 cents and spend 10 cents on imports. That is 45 cents out of every dollar. They spend the other 55 cents on goods made at home. Card B, "Two policies" (made up). Policy 1: the government buys $90 of goods made at home. Policy 2: the government cuts taxes by $90, so households have $90 more income. Card C, "The spending multiplier" (in our words). The total change in income equals the first round of new spending divided by the share of each extra dollar that leaks out of the circle.

2. 1.

   Ren applies card C to cards A and B. What total change in income does each policy produce?

   • Policy 1 raises income about $200 ($90 over 0.45); Policy 2 about $110 ($49.50 over 0.45)
   • Both raise income about $200, because each puts the same $90 into the economy at the very start
   • Policy 1 raises income about $164, which is $90 divided by 0.55
   • Policy 2 raises income more, since households choose how to spend it
3. 2.

   A speaker says spending on imports makes stimulus mostly help other countries. Tala tests it with card A. What is the verdict?

   • Supported: imports leak each round, so most new spending goes abroad
   • Supported: imports are the largest leak, since the 10 cents on imports is spent abroad and not at home
   • Not supported: imports take 10 of the 45 cents that leak each round; taxes and saving take 35
   • Not supported: the card says nothing about where the imports come from
4. 3.

   Zee wants to test whether Policy 1 will really raise income by about $200. Which missing evidence would matter most?

   • Whether households spend 55 cents of each dollar at home
   • What the government buys with the $90
   • How many households there are in the economy, since more households would mean a larger multiplier
   • Whether the economy has idle workers and factories, or whether extra spending just raises prices
5. 4.

   A planner says a $90 tax cut is as strong as $90 of new purchases. Ari looks for the strongest objection from cards A to C. Which is it?

   • Imports leak 10 cents of each dollar, so a tax cut loses more to imports than purchases do
   • A tax cut costs the government more than purchases do
   • A tax cut starts with only 55 cents of spending at home per dollar, so it starts smaller
   • A tax cut is weaker than purchases, so it is a poor use of $90 under any plan

6. Use this

   Card A. Compare chart "U.S. trade in goods and services, billions of dollars" (U.S. Bureau of Economic Analysis, through FRED, retrieved Nov 14, 2026), columns Year | Exports | Imports | Net exports: 2019 | 2,539.4 | 3,116.7 | −577.3; 2022 | 3,036.6 | 3,955.0 | −918.4; 2024 | 3,219.3 | 4,100.7 | −881.5. Note: current dollars. Net exports are exports minus imports. GDP counts spending on goods made abroad inside consumption, investment and government purchases, and then subtracts imports.

7. 5.

   Bo compares exports and imports on card A across 2019 and 2024. Which claim does the card support best?

   • Both rose, imports about 32 percent against exports about 27, so the gap widened
   • Net exports were −577.3 in 2019 and −881.5 in 2024
   • Imports caused the trade gap to widen by growing faster than exports
   • Exports grew about 27 percent in output, so the economy exported more goods in 2024 than before
8. 6.

   A writer says the 2022 trade gap of 918.4 cut GDP by $918.4 billion. Esme tests it with card A. What is the verdict?

   • Supported: net exports of −918.4 are subtracted from GDP, so GDP is that much lower than it would be
   • Not supported: imports are counted in spending and then subtracted, which removes goods made abroad
   • Not supported: 2022 is not a year on the card, so the claim cannot be tested
   • Supported: the gap means exports fell short, so firms at home produced less
9. 7.

   Jun adds a fact to card A: consumption, investment and government purchases in 2022 were 17,670.8, 4,843.9 and 4,463.4. Which statement about 2022 GDP is correct?

   • GDP was 26,978.1, the total of the three spending parts consumption, investment and government
   • GDP was 27,896.5, since the gap of 918.4 is added to the three parts
   • GDP was 3,036.6, the exports for the year
   • GDP was 26,059.7: those three parts total 26,978.1, less the 918.4 gap
10. 8.

    Kira wants to say whether the widening gap hurt U.S. households. Which missing evidence would matter most?

    • What households and firms got from the added imports, and what exports earned
    • The 2024 value of net exports
    • The exports total for 2020
    • The imports total for 2018, to see whether imports were already rising before 2019

11. Use this

    Card A. Compare chart "A labor market, workers in thousands" (made up for practice), columns Wage per hour | Workers offered now | Workers offered after more people join | Workers firms want now | Workers firms want after households cut spending: $14 | 40 | 50 | 100 | 80; $16 | 60 | 70 | 90 | 70; $18 | 80 | 90 | 80 | 60; $20 | 100 | 110 | 70 | 50; $22 | 120 | 130 | 60 | 40. Note: made up for practice. The market starts where the "now" columns match. In the first move, households cut their spending, so firms want fewer workers at each wage. In the second move, more people join the labor force at each wage.

12. 9.

    Luz reads card A where each pair of columns meets. Without reading the sizes, which result is certain?

    • The wage rises, because more people join and want jobs
    • Both the wage and the number of workers fall, because both moves lower the wage and the jobs
    • The wage falls for certain; the number of workers could rise, fall or stay the same
    • The number of workers falls, because firms want fewer at each wage
13. 10.

    Noah multiplies wage by workers before and after the changes on card A. What does that show about the circle?

    • It rises from $1,120 thousand to $1,440 thousand, since more people joined the labor force
    • The wage bill paid to households falls from $1,440 thousand to $1,120 thousand
    • It falls from $1,440 to $1,120, a $320 loss of income to each worker
    • It stays $1,440 thousand, because the workers who stay are paid the same