Which statement is TRUE in the case of the simple circular flow model with no savings?
A) Total spending is greater than total income.
B) Total spending equals total income only at full employment.
C) Total spending equals total income.
D) Total spending is less than total income.

Question

Quizplus · Accepted Answer

In the simple circular flow model with no savings, households spend their entire income on goods and services in the market, which become the revenue for firms. This revenue is then used to pay for the factors of production (wages, rent, etc.) that were used to produce the goods and services. Thus, total spending equals total income in this model.

Which Statement Is TRUE in the Case of the Simple