4. Use the circular-flow diagram to explain how an increase in the amount of money spent by households results in an increase in the number of jobs in the economy. Describe in words what the circular-flow diagram predicts.
An increase in the amount of money spent by households results in an increase in the flow of goods to households. This, in turn, generates an increase in demand for factors of production by firms. So, there is an increase in the number of jobs in the economy.