A factory in a small town shuts down, laying off all its workers. Using the circular flow model, what are the likely consequences?

Question

Accepted Answer

Household incomes decrease, reducing spending on goods and services, which hurts other businesses.

Answer

Firms will increase production to compensate for the job losses.

Answer

Household incomes increase, boosting spending in other sectors of the economy.

Answer

The financial sector will provide enough loans to households, preventing any economic impact.

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