Which of the following is TRUE regarding the circular flow diagram?
I. "Aggregate income" is the flow of income earned by firms.
II. Retained earnings are considered income earned by firms rather than part of households' income.
III. The government, households, and firms all have transactions in the goods market.

Question

Quizplus · Accepted Answer

In the circular flow diagram, the government, households, and firms all participate in the goods market, making statement III true. Statement I is incorrect because aggregate income is the total income earned by households, not firms. Statement II is incorrect because retained earnings are part of firms' income, not households'.

Which of the Following Is TRUE Regarding the Circular Flow