If there is no government and no foreign trade, then:
Answer & explanation
Correct answer: option 3
The correct answer is Option (3) → \( G = T = M = X = 0 \)
Where there is no government and no foreign trade, these four items do not exist, so each of them is zero.
With no government, there is no government expenditure and no tax. So G = 0 and T = 0.
With no foreign trade, there are no imports and no exports. So M = 0 and X = 0.
NCERT (2026-27): “2.2 Circular Flow of Income and Methods of Calculating National Income The description of the economy in the previous section enables us to have a rough idea of how a simple economy – without a government, external trade or any savings – may function.… …In this simplified economy, there is only one way in which the households may dispose off their earnings – by spending their entire income on the goods and services produced by the domestic firms. The other channels of disposing their income are closed: we have assumed that the households do not save, they do not pay taxes to the government – since there is no government, and neither do they buy imported goods since there is no external trade in this simple economy. In other words, factors of production use their remunerations to buy the goods and services which they assisted in producing.…” |