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.

   Ren reads the town's card. Saving takes $100 out of the circle. What brings it back?

   • The $900 of household spending, which is the largest flow on the card
   • Households do, because they spend the saved $100 on goods and services next
   • Businesses spend $100 on new equipment, so total spending returns to $1,000
   • Nothing does, because saved money has left the circle, so spending stays at $900
3. 2.

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

   • It stays at $1,000, because households still save $100 each month
   • It falls to $860, because spending falls by the $100 that households save
   • It falls to $960, so businesses take in $40 less than before
   • It rises to $1,060, because the $60 is added on top of $1,000
4. 3.

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

   • Saving shrinks the circle in any town, since saved money stops circulating
   • Saving does not shrink the circle when businesses spend the saved money
   • Households save $100 because businesses spend $100 on equipment
   • Households spend $900 and save $100, which adds to the $1,000 of income
5. 4.

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

   • How much households spent in the month before this one
   • Whether households receive wages, rent, interest and profit
   • 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

6. 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.

7. 5.

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

   • Yes: taxes of $200 match government purchases of $200
   • No: leaks are $200 of taxes and added money is $80 of equipment, so the circle shrinks
   • No: saving of $80 is less than the $200 the government spends
   • Yes: leaks are $280 and added money is $280, so the circle holds steady
8. 6.

   Esme sees the government buy $250 of goods instead of $200, with taxes unchanged. Using card A, what follows?

   • Added money is $330 against $280 of leaks, so spending and income tend to rise
   • Nothing changes, because taxes of $200 still match the old purchases of $200
   • Spending and income fall, because the government spends more than it collects
   • Added money is $250, so it equals the old leaks of $280 plus $30
9. 7.

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

   • How much households saved this month
   • Whether businesses spent anything on equipment
   • 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

10. 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.

11. 8.

    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
    • $800 less, because the town's own goods are no longer bought
    • $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
12. 9.

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

    • Nothing net: $100 leaves as imports and $100 comes back as exports
    • They add $40, since exports rose by $40 from the old $60
    • They remove $100, because imports are still $100 a month
    • They add $100, because exports have risen to the same size as before
13. 10.

    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
    • Households spend $900 in total, with $800 on goods made in town
    • Exports are $60 because imports are $100
    • Money spent on imports leaves the circle unless exports bring the same amount back