The circular flow: how households, businesses and government connect

Grade 12 Social Studies Worksheet - Building Confidence

Circle the best answer.

1. Read this first

   Use this

   Card A. Compare chart "One month in an example town" (made up for practice), columns Flow | Amount: Wages, rent, interest and profit paid to households | $1,000; Household spending on goods and services | $900; Household saving | $100; Business spending on new equipment | $100. Note: made up for practice. Saving is money households do not spend. Equipment spending is money businesses spend on machines and tools.

2. 1.

   Tala sees businesses cut their equipment spending to $60. Using card A, what happens to total spending?

   • It rises to $1,060, because the $60 is added on top of $1,000
   • It falls to $860, because spending falls by the $100 that households save
   • It stays at $1,000, because households still save $100 each month
   • It falls to $960, so businesses take in $40 less than before
3. 2.

   Zee writes one claim from the town's card. Which claim is best supported?

   • Saving does not shrink the circle when businesses spend the saved money
   • Saving shrinks the circle in any town, since saved money stops circulating
   • Households spend $900 and save $100, which adds to the $1,000 of income
   • Households save $100 because businesses spend $100 on equipment
4. 3.

   Ari wonders if the town's circle will stay at $1,000 next month. Which missing fact would help most?

   • Whether households receive wages, rent, interest and profit
   • How much households spent in the month before this one
   • Whether next month's saving and equipment spending will again match
   • The color of the equipment businesses will buy next month, which decides the flows

5. Use this

   Card A. Compare chart "A town with a government, one month" (made up for practice), columns Flow | Amount: Income paid to households | $1,000; Taxes households pay | $200; Household spending | $720; Household saving | $80; Government purchases of goods | $200; Business spending on new equipment | $80. Note: made up for practice.

6. 4.

   Bo reads card A. Do the leaks (saving plus taxes) match the money added back (equipment plus government purchases)?

   • Yes: leaks are $280 and added money is $280, so the circle holds steady
   • No: saving of $80 is less than the $200 the government spends
   • No: leaks are $200 of taxes and added money is $80 of equipment, so the circle shrinks
   • Yes: taxes of $200 match government purchases of $200
7. 5.

   Jun adds up the spending in the town on card A. Which statement is correct?

   • Household, government and equipment spending total $1,000: $720, $200 and $80
   • Spending totals $1,200, because income of $1,000 and taxes of $200 add up
   • Spending totals $920, since households spend $720 and the government spends $200
   • Spending totals $1,280, because taxes and saving are also spending
8. 6.

   Kira wants to know how the extra $50 of government purchases will be paid for. Which missing fact helps most?

   • Whether the government will raise taxes or borrow to pay for the extra purchases
   • How many goods the government bought last year, to see how big the purchases were
   • Whether businesses spent anything on equipment
   • How much households saved this month

9. Use this

   Card A. Compare chart "Trade in the town, one month" (made up for practice), columns Flow | Amount: Household spending on goods made in town | $800; Household spending on goods made abroad (imports) | $100; Spending by people abroad on goods made in town (exports) | $60. Note: made up for practice. Imports leave the town's circle; exports enter it.

10. 7.

    Luz reads the trade card. Compared with a town that trades nothing, what do imports and exports do to the circle?

    • $40 less: $100 leaves for imports and only $60 comes back as exports
    • $60 less, because exports are the only flow that crosses the town's edge
    • $160 more, because exports and imports both bring money into the town
    • $800 less, because the town's own goods are no longer bought
11. 8.

    Milo sees exports rise to $100. Using the trade card, what do imports and exports do to the circle now?

    • They remove $100, because imports are still $100 a month
    • They add $40, since exports rose by $40 from the old $60
    • Nothing net: $100 leaves as imports and $100 comes back as exports
    • They add $100, because exports have risen to the same size as before
12. 9.

    Noah writes one claim from the trade card. Which claim is best supported?

    • Imports hurt a town in any case, because the money spent on them leaves it and does not return
    • Exports are $60 because imports are $100
    • Households spend $900 in total, with $800 on goods made in town
    • Money spent on imports leaves the circle unless exports bring the same amount back
13. 10.

    Pia wants to know whether imports are a good or a bad thing for the town. Which missing fact helps most?

    • The name of the country the imports came from, since that tells what the town gets
    • The dollar amount of imports, which is $100
    • Whether imports leave the circle
    • What the town's households get in return for the money spent on imports