Question : Which of the following statements is/are false concerning a simple model of the circular flow of economy?
i. The aggregate consumption is more than the aggregate expenditure.
ii. There is government intervention.
iii. There are no trade activities with the rest of the world.
Option 1: Only i and iii
Option 2: Only i
Option 3: Only iii
Option 4: Only ii and iii
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Correct Answer: Only i
Solution : The correct answer is Only i .
The false statement concerning the simple model of the circular flow of the economy is:
i. The aggregate consumption is greater than the aggregate expenditure .
In the simple model of the circular flow of the economy, aggregate consumption is equal to aggregate expenditure. This equality is a key assumption in the basic version of the model, where the total income earned by households (through factors of production) is spent on goods and services produced by firms, leading to a circular flow.
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