Photo AI
The diagram below represents the Circular Flow of Income in an open economy without government - Leaving Cert Economics - Question b - 2017
Question b
The diagram below represents the Circular Flow of Income in an open economy without government. (i) Ireland is an open economy. Explain this statement. (ii) State ... show full transcript
Worked Solution & Example Answer:The diagram below represents the Circular Flow of Income in an open economy without government - Leaving Cert Economics - Question b - 2017
Step 1
Ireland is an open economy. Explain this statement.
Answer
Ireland is considered an open economy because it engages in international trade. This means that it imports and exports goods and services with other countries. Being an open economy allows Ireland to interact with the global market, which can enhance competition, provide access to a wider variety of goods and services, and stimulate economic growth through international investment and trade partnerships.
Step 2
Step 3
Referring to the diagram above, explain the type of activities which take place between any two of the following: Foreign markets and firms.
Answer
In the interaction between foreign markets and firms, firms export some of their goods to foreign markets and receive income in return. This helps firms to expand their customer base beyond local markets and increase their sales revenue.
Step 4
Referring to the diagram above, explain the type of activities which take place between any two of the following: Households and foreign markets.
Answer
Households engage with foreign markets primarily by purchasing imported goods and services. They spend part of their income on imports, which provides them with a wider choice of products and, often, more competitive prices.