The circular flow model assumes:

Question

Quizplus · Accepted Answer

The circular flow model assumes that households own the factors of production (labor, capital, land, and entrepreneurial ability) and receive income in exchange for supplying them to businesses. This income is then used to purchase goods and services from businesses, completing the circular flow. While businesses may also own some factors of production, the model assumes that the majority are owned by households. The government may also play a role in the economy, but the circular flow model focuses on the flows between households and businesses.

The Circular Flow Model Assumes