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The Whys of Taxes

Theme 4: What Is Taxed and WhyLesson 2: Taxes in a Market Economy


This model illustrates the circular flow of the economy. Households provide labor/payments to business and taxes/labor to the government. Business provides taxes/goods and services to the government and income/goods and services to households. The government provides services/income to households and services/payments to business.
In the United States market economy, there are three sectors, or elements, that interact: households, businesses, and the government. Economists use the circular flow model to explain the interaction among these three sectors. Each sector of the economy contributes to another.


quick check
What three sectors contribute to the United States economy?

tax trivia
Did You Know?
Historically, market economies periodically suffer short periods of high unemployment. During the 1930s, the Great Depression seriously slowed the economy of the United States. Millions of Americans were out of work during that time.

Test your tax trivia knowledge by answering the following multiple-choice question. Click on the correct answer. To assess your answer, click the Check My Answers button.
How many Americans were out of work during the Great Depression?
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  • B.
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  • D.

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