In the simple circular flow model
A) income is equal to spending.
B) saving is equal to consumer spending.
C) factor payments are equal to goods and services.
D) goods and services are equal to consumer spending.

Question

Quizplus · Accepted Answer

In the simple circular flow model, income flows from firms to households in the form of factor payments (wages, rent, interest, and profit), and households spend this income on goods and services produced by firms. This spending by households creates revenue for firms, which in turn leads to the creation of more income for households. Since all income ultimately flows back to households in the form of spending, income is equal to spending in the model.

In the Simple Circular Flow Model