Question

The chart shows a circular flow model describing the movement of goods and services. How does globalization cause the foreign sector to influence the economy? The foreign sector influences how services move between firms and households. The foreign sector influences how imports and exports move between firms and households. The foreign sector influences how factors of production move between firms and households. The foreign sector influences how goods move between firms and households.

Answer 1

The foreign sector influences how goods or services move between firms and households: This is not the answer because as seen in the chart, the movement of goods and services is determined by how households and firms trade them.

The foreign sector influences how imports and exports move between firms and households: This is not the answer because imports and exports are determined by the demand of households and firms, the foreign sector has nothing to do with the desires of a different country.

The foreign sector influences how factors of production move between firms and households: This is the answer because globalization and in this case the foreign sector affect the national production of goods and services, in this case when the foreign sector is open to trade with other countries the use of national factors of production will be affected because goods and services are being found elsewhere.

In this case, if for example a country produces rice and it starts demanding more rice from a different country, the situation of the rice producers will change and the result would be less workforce, lower wages and so on.

Answer 2

Globalization cause the foreign sector to influence the economy because the foreign sector influences how imports and exports move between firms and households.The foreign sector, which is the sum of imports and exports, has become more and more important because of globalization, thus its massive influence on economy.