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Figure: Circular-Flow Model
-(Figure: Circular-Flow Model) Look at the figure Circular-Flow Model. If the circular-flow model is in equilibrium (the sum of money flowing into each box is equal to the sum of the money flowing out of it) and there is an increase in consumer spending, which of the following is likely to happen?
A)an increase in the nominal GDP
B)a decrease in the nominal GDP
C)an increase in the unemployment rate
D)a decrease in the inflation rate

Question

Use the following to answer questions :
Figure: Circular-Flow Model 
-(Figure: Circular-Flow Model) Look at the figure Circular-Flow Model. If the circular-flow model is in equilibrium (the sum of money flowing into each box is equal to the sum of the money flowing out of it) and there is an increase in consumer spending, which of the following is likely to happen?
A)an increase in the nominal GDP 
B)a decrease in the nominal GDP 
C)an increase in the unemployment rate 
D)a decrease in the inflation rate

Quizplus · Accepted Answer

An increase in consumer spending will lead to an increase in the flow of money from households to firms which in turn increases the spending, production, and income. This will cause an increase in the final goods and services produced (nominal GDP) in the economy.

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