Which of the following best describes the main difference between the circular flow models shown on pages 53 and 80?

• A. Both models show the same participants but use different colors to represent flows.
• B. The model on page 53 includes government, while the model on page 80 excludes government.
• C. The model on page 53 shows only households and firms, while the model on page 80 includes government and the foreign sector.
• D. The model on page 53 focuses on the financial market, while the model on page 80 focuses on the product market.

Answer: (C)

Verified step by step guidance

1. Step 1: Understand the circular flow model as a representation of how money, goods, and services move through an economy between different sectors such as households, firms, government, and the foreign sector.
2. Step 2: Identify the participants included in the model on page 53. Typically, a basic circular flow model includes only households and firms, showing the flow of resources and products between these two groups.
3. Step 3: Examine the model on page 80 to see if it expands the basic model by including additional sectors such as government and the foreign sector, which introduce more complex flows like taxes, government spending, imports, and exports.
4. Step 4: Compare the two models by noting that the model on page 53 is a simpler version focusing on just households and firms, while the model on page 80 is more comprehensive, incorporating government and foreign trade.
5. Step 5: Conclude that the main difference lies in the scope of participants included: the simpler two-sector model versus the expanded multi-sector model including government and foreign trade.