The circular flow model shows that households use income for:
A) consumption, saving, and factor payments.
B) consumption, taxes, and factor payments.
C) taxes, saving, and factor payments.
D) consumption, taxes, and saving.

Question

Quizplus · Accepted Answer

The circular flow model illustrates that households primarily use their income for consumption (buying goods and services), paying taxes to the government, and saving (setting aside money for future use). Factor payments refer to wages, rent, interest, and profits paid to households for the use of their factors of production, which is not something households use their income for, but rather, how they earn their income.

The Circular Flow Model Shows That Households Use Income For