Which of the following is illustrated by the circular flow of income?
A)the interaction of households and firms through the factors and goods markets
B)that there is no relationship between goods markets and factor markets
C)the flows of expenditures and income in a household
D)that the flow of payments moves in the same direction as the flow of goods
E)that firms own the factors of production

Question

Quizplus · Accepted Answer

The circular flow of income shows the interaction between households and firms through the factors (labor, capital, land, and entrepreneurship) and goods markets. In this system, households offer factors of production to firms, which in return produce goods and services that are sold to households for consumption. The circular flow diagram shows how income earned by households from selling their factors of production is used to purchase goods and services from firms, which then generates income for the firms to continue producing goods and services.

Which of the Following Is Illustrated by the Circular Flow