In the circular flow diagram model:
A) households receive income from businesses in exchange for providing inputs and use that income to buy goods and services from businesses.
B) businesses receive revenues from households in exchange for providing goods and services and use those revenues to buy inputs from households.
C) households receive revenue for selling goods and services to businesses, and use that revenue to buy inputs from businesses.
D) Both a) and b) are correct.

Question

Quizplus · Accepted Answer

The circular flow diagram model illustrates the economic interactions between households and businesses. Households provide labor and other resources to businesses, receiving income in return, which they then use to purchase goods and services from businesses. Conversely, businesses sell goods and services to households, using the revenue to pay for the inputs (like labor) they receive from households. This mutual exchange is accurately described in both A and B, making D the correct choice.

In the Circular Flow Diagram Model