The outer loop of the circular-flow diagram represents the flows of dollars in the economy.Which of the following does not appear on the outer loop?

Question

Quizplus · Accepted Answer

Capital does not appear on the outer loop of the circular-flow diagram, as it is not a flow of dollars but rather a factor of production used to produce goods and services. The outer loop represents the flows of dollars between households and firms through product markets (households buying goods and services from firms) and factor markets (firms paying wages, rent, and other incomes to households in return for their labor and other factors of production). Therefore, choices A, B, and D appear on the outer loop as they represent flows of dollars between households and firms in the economy.

The Outer Loop of the Circular-Flow Diagram Represents the Flows