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 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 rises to $1,060, because the $60 is added on top of $1,000
   • 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?

   • Households spend $900 and save $100, which adds to the $1,000 of income
   • 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
4. 3.

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

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)?

   • 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
   • 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
7. 5.

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

   • Spending and income fall, because the government spends more than it collects
   • Added money is $330 against $280 of leaks, so spending and income tend to rise
   • Added money is $250, so it equals the old leaks of $280 plus $30
   • Nothing changes, because taxes of $200 still match the old purchases of $200
8. 6.

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

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

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
    • $800 less, because the town's own goods are no longer bought
    • $160 more, because exports and imports both bring money into the town
11. 8.

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

    • 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 remove $100, because imports are still $100 a month
    • 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?

    • 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
    • Imports hurt a town in any case, because the money spent on them leaves it and does not return
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
    • What the town's households get in return for the money spent on imports
    • Whether imports leave the circle