Referring to the circular flow of income, write up to five paragraphs on the following topic:

  • Give one example of a decision by a corporation and explain how this could affect the flows of money towards two different types of households.
  • Then describe the indirect effects that this decision may have on the flow of money between the two households and the government.

This is a short piece of writing, not an essay, so please do not write an introduction or conclusion. This serves as a building block towards writing a full essay in later assessments. The question is about explaining the model of the circular flow of income and applying it to an example of your choice. Read the question carefully and address all of its parts; chiefly the flow of money between the relevant sectors and its effects, both directly and indirectly. When looking at the household sector, you should consider two different types of household that are differently affected by a corporation’s decision of your choosing. Then you should consider how the two households might react to this decision or might be indirectly affected, with potential changes in flows of money between them and the government sector. Recall that households can vary according to, for example, income, age, location or household composition and people interact with corporations in a variety of ways such as employees, consumers, savers, etc, and with the government sector as taxpayers, benefit recipients or public sector employees.

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