In a simple circular-flow diagram, total income and total expenditure are
A)never equal because total income always exceeds total expenditure.
B)seldom equal because of the ongoing changes in an economy's unemployment rate.
C)equal only when the government purchases no goods or services.
D)always equal because every transaction has a buyer and a seller.

Question

Quizplus · Accepted Answer

In a simple circular-flow diagram, the concept is that the economy is a closed loop where every expenditure by a buyer is income to a seller. This means that the total income in the economy must equal total expenditure, as every dollar spent by a buyer becomes a dollar of income for the seller. This model assumes no leakage (like savings or taxes) out of the economy, making total income and total expenditure always equal.

In a Simple Circular-Flow Diagram, Total Income and Total Expenditure