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

Question

Quizplus · Accepted Answer

The circular flow of income shows the interaction of households and firms through the factors and goods markets. It illustrates how households supply factors of production to firms which in turn produce goods and services that are sold to households. The households then receive payments for the factors of production, which completes the circular flow of income.

The Circular Flow of Income Illustrates